Ted Bilke - CTO at Jack Henry & Associates

(Joel Beasley at 00:00:00) Hello, my friends. Today we are talking to Ted, the CTO at Jack Henry and Associates, and we discuss their suite of tools that is making it easier for community banks to compete with the national banks, how to maximize productivity by working through your team, and what the future looks like for consumers of financial technologies. All of this right here, right now on the Modern CTO Podcast. This is the Modern CTO podcast. So did you grow up in Houston?

(Ted at 00:00:41) No. Actually, I grew up in Missouri, grew up just outside of Joplin, Missouri, which is a weird story because I'm only about 40 miles from where Jack Henry is headquartered. And I went to college at Missouri Southern State University in Joplin, really a commuter school. And when I graduated in the early eighties, they told me there was this little software company over in Monett, Missouri.

(Ted at 00:01:10) And I said, okay. I'm in a town of 50,000. Monett's 7,500. There is no way I'm even gonna go talk to those guys. And went to Dallas, make my fortune, went to work for EDS. And twenty years later, I ended up interviewing with the folks at Jack Henry and joined Jack Henry sixteen years ago.

(Ted at 00:01:35) And it was really weird to kind of make this circle back to working for a company 40 miles from my hometown.

(Joel Beasley at 00:01:42) Life is beautiful like that. Yeah.

(Ted at 00:01:44) Yeah. Yeah. Well, I got a funny story. I'll just a short one I'll share with you is when I met Jack Henry, he was still alive. And within a month after I joined the company, I met him in Monett in a meeting, and it was the first time in my career somebody actually asked me about my dad.

(Ted at 00:02:06) So he asked if my dad was one of the four brothers that grew up over in the area. And he actually knew my dad and his brothers, and I had to call my dad and tell him, okay. This is the first time in my career I've had to be worried about what you've done. So it kind of went full circle.

(Joel Beasley at 00:02:26) Now, what was the technology scene experience like when you were growing up in that town of 50,000?

(Ted at 00:02:35) Well, I can tell you the first programming course I took was Fortran, and it was on an old IBM system that the electric company gave to the college. So it was pretty light. My degree is actually in finance and marketing. You know, we had a small computer sciences program at the university, but it was still pretty fledgling. And then when I went to Dallas and went to work for EDS, I went through their programming school that was based around COBOL and assembler, all mainframe development.

(Ted at 00:03:13) So that's really how I started from a technology standpoint once I got to Dallas. But not a lot of technology around Joplin at the time. And I'm dating myself, but, you know, nobody had PCs in the early eighties. You know, those didn't come until a few years later. Not too much later, but a little bit later.

(Ted at 00:03:37) So it was interesting.

(Joel Beasley at 00:03:39) How do you go from that to, like, space operations at Lockheed Martin?

(Ted at 00:03:45) Well, actually, I was in Dallas looking for my next opportunity. Had an opportunity to come down and interview with Lockheed. And what they were looking to do, they're predominantly a federal contractor. At the time frame around 2000, 2001, they were looking to leverage their government contracting experience and move more into the commercial space. So what they were looking for were a few folks that could come in at a fairly senior level and do two things.

(Ted at 00:04:24) One was help Lockheed get into commercial opportunities, and the second was to help NASA, who was struggling a little bit from an identity standpoint, help NASA transition technology back into the commercial sector. You know? So they kind of longed for the days of the creation of WD-40 and Tang and those kind of things, you know, looking to create a positive image. So they weren't really looking for any dollars. They were just looking to pass technology back over into the commercial sector.

(Ted at 00:05:04) So my job when I went in as a vice president was to run a large block of government contracts, but then in my spare time go develop commercial opportunities and find ways to leverage technology created with NASA or by NASA, bring it into the commercial sector.

(Joel Beasley at 00:05:26) That's pretty cool. I learned a little bit about that from Douglas Terrier who's, I think he's still the current CTO or CIO at NASA. But he rattled off a list of items that were made possible because of NASA. And I was blown away. Like, I think power tools is one of the more interesting ones that stuck in my mind.

(Ted at 00:05:45) Okay. Yeah. Makes sense. I mean, it was, you know, we got to do some really interesting stuff and it was kind of fun. You know, for me, it was the perfect model because Lockheed space operations was about 7,000 people.

(Ted at 00:06:00) And with NASA being a supporter of shifting things into the commercial space, we could go do projects and pull people off of government fixed price contracts and assemble teams and take them into commercial opportunities and give some kudos to the NASA folks as well as the Lockheed folks, you know, make some money. If you think about that time frame around 2000 and just following through the whole dot-com escalation and eventual bust, but to be able to take opportunities and people and never have a bench. You know, whenever we'd finish a project, the folks would just go right back to whatever contract they were working on for NASA. You know, so one of the most interesting was we had a small venture-backed company that was looking. They had gone and tried to have a group engineer an analog security system for boats. So they were trying to take the ADT home security model to the boating industry.

(Ted at 00:07:15) And what they figured out was most boat damage is done when the boat's in the slip and nobody's around. You know, comes untied, it sinks, loses shore power, whatever. So what they wanted to do was use an analog cellular connection, have a couple of sensors and be able to monitor the boats and report any type of, it could be anything from security to, as I mentioned, loss of power or movement or something like that. So when this company came to my team, they basically had what had been engineered into about two shoe boxes, a product that was a prototype. And what they were looking for was somebody to take that, refine it, shrink it, and help them create a bill of materials so they could get the device built offshore.

(Ted at 00:08:13) So we took that on as a challenge, which was perfect because we pulled literally engineers that were working on NASA type projects. And, you know, they are fabulous at sensors and engineering devices. And they actually engineered the device down to be about the size of a paperback novel and created a sensor bus where you could plug in 20 different sensors for things they didn't imagine. And we even made it tri-modal so that you could have analog, digital, and satellite. So you could not just monitor when it's in the slip within cellular range, but when it got out on the water, you could use satellite.

(Ted at 00:09:01) And did it at a cost and bill of materials that was about 80% of what they had asked us to target. So it was a great project. Then when the project was done, the engineers all went back to NASA projects. So we were doing projects like that. We did program management for Visa International, was an interesting exercise, you know, because, again, in the NASA environment, we did very big long-term projects, you know, very methodical in creating project plans and program plans, you know, not just tens of thousands of hours, but hundreds of thousands of hours on projects.

(Ted at 00:09:46) So we actually helped teach Visa International how to do program management of very large projects. And then another one that was fun, this will be my last story around these guys. After 9/11, I made a phone call to the chief of police for the Port of Houston just to check in with him and see what his challenges were around the funding and port security. And he invited me over for a meeting, and his challenge was his current environment, he had 200 cameras up and down the Houston Ship Channel, and he had 20 TVs on a wall. And they would just basically alternate the pictures between the 200 cameras.

(Ted at 00:10:32) And he had just been told he needed to go from 200 cameras to over 2,000 cameras, and he was trying to envision what the command center would look like and how many TVs he would need to be able to monitor 2,000 cameras. And we were actually able to take some technology that NASA used where we were interrogating the screens and comparing images so that we only displayed the images that changed and discarded the images coming in from cameras where there was nothing exciting to focus the images around things that were going on or changes that were happening in the environment. So even though they went to 2,000 cameras, they still only had 20 cameras and we were selectively displaying what it is they would see in their command center. You know, so it was an interesting project. Got lots of kudos for the NASA folks because they had to release technology into the commercial space that they could use and, you know, they were, as a customer, they were really excited because after 9/11, they were able to help the country and leverage some of this technology.

(Ted at 00:11:50) So it was pretty cool stuff.

(Joel Beasley at 00:11:53) Do you have any NASA tech over at Jack Henry?

(Ted at 00:11:59) I have a few folks I took with me when I came to Jack Henry. So, you know, again, and probably some of the stuff that would surprise you because, you know, one of the interesting things for the folks in that Lockheed NASA community is they always felt they were doing things that were so unique. You know? But the reality is things like getting the shuttle ready to launch, you know, would be really more of a logistics project, a big logistics, making sure everything you needed was there when you were ready to go. So although they felt the problems were unique to NASA, they really weren't.

(Ted at 00:12:40) There was great application to a lot of other projects. So when I went to Jack Henry in 2005, I took a few folks with me when I went into the credit union division. And they helped me put in place better program management controls, system controls. And one of the teams that I managed actually did the rewrite of mission control, all the systems in mission control. So we had really, it was systems integration work at its core. And that's to me, that's what I've done my whole career.

(Ted at 00:13:18) It's been multiple industries, but it's all been about systems integration work and product creation type efforts.

(Joel Beasley at 00:13:25) I own a financial company. Those are the people who I want working on my systems. Right?

(Ted at 00:13:31) Exactly. Exactly.

(Joel Beasley at 00:13:33) So what is it that Jack Henry does? What's the 10,000 foot overview?

(Ted at 00:13:38) Well, Jack Henry, you know, it's kind of interesting. If you look at the big banks and even the super regionals, they all have their own systems. You might find some common roots if you go back into the early eighties, even into the seventies, you know, with some mainframe COBOL-based systems. Almost all of the big guys are running those IBM mainframe systems. The lower end of the market or the middle market, you know, we call the mid-tier below those big super regionals and the big national banks.

(Ted at 00:14:14) You know, we refer to them as the community banks and credit unions. So there's just right around 5,000 community banks in that space below about $30 billion in assets. And there's about 5,000 credit unions in that space below about $20 billion in assets. So where Jack Henry grew up is in that community bank space. And the model for Jack Henry is to create a common core platform kind of at the center which is really when we talk about core, we're talking about the ledger transaction system that tracks your account balances whether those are deposit accounts or loan accounts.

(Ted at 00:15:01) Those are the core systems. So those core systems are mostly off-the-shelf type systems. You know, so you're not gonna do more than 10 or 15% customization to those systems. But the opportunity is no smaller financial institution could afford to make the investment to compete with a Wells Fargo or a Bank of America. But when you put the market together, and in Jack Henry's case, we have about 1,800 core customers across banking and credit unions, you know, that use one of our four core systems, then you have the mass.

(Ted at 00:15:45) You know, and I like to say, you know, everybody pays you a nickel. Before long, you have a dollar or two, and that lets you make the investments to provide systems with the same level of capability and functionality, you know, that the big single bank systems have. So we've created a business, we do about $1.7 billion a year in revenue. We joined the S&P 500 a couple of years ago.

(Ted at 00:16:12) We have about 7,000 employees. And as I mentioned, we have 1,800 core customers and about 7,000 customers that have at least one of our other complementary products. So around the core, there's all kinds of products that banks and credit unions use. Everything from document systems, mobile banking products, home banking products, pricing products for our commercial banking customers and how they price rates. You know, the list goes on and on.

(Ted at 00:16:50) There's about 200 products that we deliver to the banking and credit union space. So we refer to those as complementary products.

(Joel Beasley at 00:17:00) I had a little bit of experience in this space. I did some financial software, but I also worked on audit confirmation software.

(Ted at 00:17:07) Okay. Yeah.

(Joel Beasley at 00:17:09) It's something where the bank, an audit will happen and the CPA needs to get validation from the bank of an account's balance. And so I built some of those systems which were pretty interesting a few years ago.

(Ted at 00:17:21) Okay. Okay. Cool.

(Joel Beasley at 00:17:23) Did you grow through, like, mergers, or did you build all of these 200 products?

(Ted at 00:17:28) The core products, there were a couple of mergers, but it gets candidly, it gets a little bit messy when you start acquiring a lot of core products. You know, where we try to differentiate ourselves is the depth of integration between our core products and our complementary products. So we started doing acquisition of complementary products in the late nineties. We also started building products. So it's really been a blend of both.

(Ted at 00:17:59) And kind of where we are today with over 200 complementary products is we're kind of in this cadence of modernization and refresh, you know, where it seems like every year, you know, it's time to rewrite, refresh from a technology perspective, you know, anywhere from a couple to as many as six, eight products kind of in a cycle of modernizing the products and the technology. So, you know, there's really three key companies in our market that supply core systems and complementary systems to about 75% of the market. That's really Jack Henry, Fiserv, and FIS are really kind of the three vendors that are the main vendors. And our approach and our models are somewhat similar in how we approach the market. And then we look to differentiate either through service, through our focus on integration, or the features of the products themselves.

(Ted at 00:19:05) But typically customers will buy, some customers want a best-of-breed. Most of the customers in the space we serve are looking for a best-of-suite. So if they buy one product from you, they're gonna buy six, eight, 10 products from you. And it's not uncommon for new customers that are coming to our system, our new core system, you know, may have thirty, forty products, you know, if they're completely updating their technology.

(Joel Beasley at 00:19:37) I like the way you answered that, by the way. So I ask that question a lot. And so I get hundreds of different ways people answer. But that stood out to me because you talked about the competitors which relieves that sort of stress of me having to ask, oh, who else does this in the market or just being curious about it. Which shows that, like, you're confident, it's open. And then you immediately started talking about differentiators. And that was awesome.

(Joel Beasley at 00:20:03) I'm taking notes. This is why I do the podcast. I find great people. I listen to how they talk and I take the little things that I really like and I say, how do I get this into my life or my team?

(Ted at 00:20:15) Yeah. Well, it's kind of funny. You know, I tell people I'm the old guy in the room. I'm not sure when that happened, you know, because I used to be the young guy like you and everybody was surprised at this young guy in the room. And somewhere along the way, I went from being the young guy to the old guy in the room.

(Ted at 00:20:29) But, you know, it's a great industry. And for me, I actually started my career in this market for ten years with EDS. And, you know, where I mentioned I did implementations for two and a half years, then I went to programming school, and I programmed on systems for four years, then I went into sales for four years. And then I left the industry for thirteen years, you know, chasing, I'll say more modern technology. You know, really, at the time, client server, and then, you know, I think that's when I really understood, you know, the evolution of technology is a continuous process, and you've really just gotta keep taking it forward and never get comfortable.

(Ted at 00:21:17) And then when I came back to—I say back. I didn't really come back to Jack Henry, but I came to Jack Henry back into the industry in 2005. For me, it was very comfortable to come in at a fairly senior level. It was the job I trained for and, you know, I was able to bring technologies from other markets because banking and credit unions, you know, very similar, but they tend not to be technology—I'll say on the leading edge of technology. They, you know, they have early adopters of technology, but it tends to be fairly proven.

(Ted at 00:21:56) And I think in this market, we tend to focus more on, you know, solving problems and addressing the needs of our customers and their customers, which are the end consumers, less so than, you know, trying to apply some of the later bleeding edge technology. We have to keep looking at that stuff, you know, because what's on the leading edge or on the bleeding edge will mature and bring value to us. But banks and credit unions tend not to be technology risk takers. And which is kinda funny because within the industry, some think they are. But when you've been outside the industry, you know, there's a lot more going on from a technology standpoint.

(Ted at 00:22:44) But it's a great opportunity to apply technology in a very practical way.

(Joel Beasley at 00:22:49) You mentioned that you used to be the young guy in the room. Right? Which means you're in a room with older people. Do you think that helped your growth or get you where you are today by putting yourself—because you could have easily been the oldest guy in the room even at a young age. Like, you could have not stretched.

(Ted at 00:23:06) Yeah. I think that's really the key is you gotta keep stretching yourself. You gotta keep challenging yourself. And it was for me, it was an interesting career progression because, you know, I felt in my early career, I was kind of a jack of all trades and master of none because I mentioned, you know, I did implementation, so I knew the implementation process. I did COBOL and assembler programming for four years.

(Ted at 00:23:37) It made me competent, but it didn't make me the best technologist in the room. Then I went into sales. You know, then what really happened for me was, you know, I got my first team where I got to own it all. And being a little bit of a control freak and wanting to be in control, I said, you know, I wanna help define what gets sold because I hated to disappoint customers. I wanna define what gets sold, and then I wanna deliver it, and then I wanna support them as a customer.

(Ted at 00:24:11) I wanna own the whole life cycle. And my first, call it, my first product leadership role was a team of eight people. And, you know, that progressed from opportunity to single product to multiple products and all the way when I was with MCI System House, I had 120 people. Bell and Howell was a small team of about 60. I was in the .com space for a little while.

(Ted at 00:24:41) I had about 500 people. Lockheed Martin Space Operations, I had 900. And then when I came to Scimitar, I had 700. And, you know, people often ask me, you know, you've ran some really big teams, you know, what's that like? And I go, well, you know, you still only have eight direct reports.

(Ted at 00:24:59) But the trick you gotta learn is how to work through people. And this is really hard for first time managers to understand is, you know, you can focus on things and you might be able to get three, four, five things done in a year. But if you've got eight direct reports and you can help them each get three or four things done, you know, now you're getting 24, 32 things done in a year. So I'm very goal oriented in setting goals, executing against goals, and I still tell the teams, you know, it's all about—everything isn't a home run over the fence. You know, you hit singles, you hit doubles, you strike out a few times.

(Ted at 00:25:41) Once in a while, you hit a home run. But when you put that together across seven, eight direct reports, you got a couple singles, you got a couple doubles, triples, home runs, few strikeouts, but collectively as a team, you were able to really move the ball forward. You know? So I had some good mentors early in my career that helped me understand how to work through people and get things done. And again, there was a time in my career where it was a little bit of a challenge, you know, because I thought—and I tell people this.

(Ted at 00:26:19) I'd kinda grown up as a mainframer. I was traveling as a sales guy and people were talking about these microsystems and C. And I thought, okay. I gotta understand what this C language is all about. So I got an old Zenith laptop and I got a copy of Microsoft C.

(Ted at 00:26:40) And then I started going through the tutorials in my hotel room at night. And it was funny. My initial impression was C couldn't decide whether it wanted to be COBOL or assembler because it had the, you know, if then type statements, but it had the syntax requirements, you know, that you tend to have more with assembler where you gotta be very specific in what you tell it to do. So I go, this isn't really the exciting part. And then I got exposed to Visual Basic, and I said, this is pretty cool.

(Ted at 00:27:14) But then you kinda reach that epiphany where you go, wow. You know, this is kinda cool, but I can hire people to do this all day long for about half what I make. This probably isn't the career path I need to go down. You know? So I talked about being jack of all trades.

(Ted at 00:27:30) You finally reach a point in your career where the real value is being somebody who can get things done, manage large teams, and work through people. And for me, that was the real catalyst that took me through a progression of, you know, large opportunities and got me in Jack Henry to run operations and then become president of the Scimitar division, which is the credit union division. And then I stepped into the CTO role about a year and a half ago. And it really is to bring an understanding of technology and how I can apply it. But, you know, there's a lot of people technically that are way smarter than me.

(Ted at 00:28:12) I just gotta figure out how to use them to get the results and help move things forward. So I know I said a lot there.

(Joel Beasley at 00:28:21) Yeah. Why did they mentor you early on? You said you had some great mentors. Why did that work out?

(Ted at 00:28:27) Yeah. Well, I think, you know, and I believe this is true because this is the way I see it. When you see people that are working hard, they're hungry, they wanna learn, they're inquisitive. You know, they're asking why. You know, why, why, why, why'd you make that decision? Why are we doing it that way?

(Ted at 00:28:47) You know, and I'm not talking so much about specifics of how you program something, but even at a broader level. Those are the folks that you wanna mentor. And I think that's what people saw in me was they saw somebody that really wanted to learn and wanted to contribute and get things done and always looking to do more. And a few folks took me under their wing and helped me do that. And I would tell you one of my early companies was EDS out of Dallas that was Ross Perot's company if you're familiar with it.

(Ted at 00:29:28) You know, that company as a large systems integrator was the best company I had ever seen at giving you opportunities to take on whatever you thought you were big enough to take on and occasionally let you fail. You know, it was you think you can do it? Let's see how far you can get. There was usually a safety net, but they gave us lots of opportunity to take chances and, you know, try to do as much as we could do. And I, you know, out of that, I had a couple of leaders that really gave me some opportunities to stretch my wings, if you will.

(Ted at 00:30:09) And I probably changed jobs more than my wife would have liked. She probably would have preferred a little bit more stability but it was really for me just wanting to learn more and do more and move on to the next thing. And I think that's really what moved me through my career.

(Joel Beasley at 00:30:30) Yeah. I find a lot of commonalities in you with myself. Like, I'm an adventurous person. I like to try new things and grow and put myself in uncomfortable situations to figure out. You know, that's typically how you grow is uncomfortable things, doing new things.

(Joel Beasley at 00:30:48) And yeah. You're giving me a lot to think about.

(Ted at 00:30:53) Yep. Yep. Well, I used to tell people, you know, I thought everybody worked sixty hours a week at the front of their career. I mean, that was just the norm. If you weren't and if you weren't actually working, you were thinking about it.

(Ted at 00:31:05) You know, you were solving problems. I used to be a pretty heavy runner, and, you know, I could write code in my head and work through problems, you know, while I was out running because anybody who runs knows running is the last thing you wanna think about when you're running.

(Joel Beasley at 00:31:21) Mhmm.

(Ted at 00:31:21) You know, and you just kind of come back to consciousness and figure out you just ran six, eight miles, 10 miles. And you, you know, you know exactly how you're gonna go back and solve a problem. So I don't know. For me, it's hard to turn it off because I just live it.

(Joel Beasley at 00:31:40) It takes a long time too. So let's say that someone's listening and they see that, you know, you're sitting here talking about putting the extra effort in, you know, just really going after it. And then, people will see that recognized. And then, that's, you know, the hard work is when you get lucky. I was talking to my wife the other night at dinner and I was like, pleasantly surprised at the success we're having. And then I also had this realization that I have been going at this every day for the past twenty years. And I am, like, since like, 13 when I started my first business, like, real legitimate, like, making money. I've been trying and trying and trying. And we just got to the point where we're, like, we're breaking 6 figures every month in new business.

(Joel Beasley at 00:32:25) And for me, it's just like, this is where I was trying to go. And now I'm here, and I've just been waking up every day and trying. And somehow twenty years went by. It's amazing.

(Ted at 00:32:38) Yep. And again, one of my mentors early on told me, you know, that what you get paid or what you earn is really it's a measure or a metric of your success. It's not the reason why we do this. You gotta do it because you love it. Whatever your profession is that you pick, you've gotta find something that energizes you and, you know, get you excited.

(Ted at 00:33:06) And for me, you know, the technology field and especially in financial services, you know, I love it because there's always problems to be solved and tremendous satisfaction, you know, for moving things forward.

(Joel Beasley at 00:33:21) You know, I heard this guy, one of my favorite motivational speakers, his name is Art Williams. And he said, some people can stay excited for a few days, some a few months, but winners can stay excited for however long it takes. And that's the one thing. I was like, I'm not the smartest but boy am I persistent and I also get very excited. So I was like, as long as I can just not let the world beat me down and just continuously stay excited, then I will be happy if I fail.

(Joel Beasley at 00:33:49) Like, I always look at it like I'm on my deathbed. Even if I didn't make it to what I considered success, as long as I tried everything I possibly could and didn't repeat the same mistakes and tried very diligently, I would be okay with being a failure at death. I was like, I just had to have that moment with myself in my twenties.

(Ted at 00:34:10) Yeah. Which and it's I think it's a balance. Again, one of the things I learned fairly early in my career is it's not how many hours you work, it's the number of quality hours you work. You know, I saw people that work side by side. You know, if you talk for four hours a day, then you're only gonna get four hours of your work done in an eight hour day.

(Ted at 00:34:35) But, you know, the person that can have a conversation and be social, but it doesn't go on and on. I mean, there was a guy I worked with that was very good. He was very social, but his conversations were fairly short and he was back to work. And he used to tell me he would go home after eight hours and he was tired because he had really worked hard eight hours. And the person that sit next to him that talked for four hours had to stay a couple hours extra and was working, you know, ten, twelve hour days, but only getting the equivalent of an eight hour day's work in, you know, because they squandered time.

(Ted at 00:35:19) And again, that's a hard lesson to learn because it's not about the time you spend. It's the quality of the time you spend.

(Joel Beasley at 00:35:29) Oh, absolutely. And I mean, I spun in circles so many times, figuring out exactly how to spend your time too. Right? And then when you start spending your time and you start getting results, it really allows you to develop this maturity and say, okay, I know that I have to do these three things super, super well.

(Joel Beasley at 00:35:52) And so I'm going to just make these, like, the highlight of my week. I get these three things done. Everything else is icing because I know these three things drive value and revenue and all of that. But getting to that point where you can find those three things. Right. That's a journey.

(Ted at 00:36:08) Right. Because if it was easy, everybody could do it. Right?

(Joel Beasley at 00:36:11) Right. Well, I mean, I burned out, man. I worked those crazy weeks so long. And looking back on doing that for so many years, like, it's like life just yielded to my persistence. Right? Like, I just kept going and I put in all of this time. I don't know. I'm talking too much. I'm just excited. I like talking to you.

(Ted at 00:36:28) Appreciate that.

(Joel Beasley at 00:36:29) Alright. So let's talk a little bit about Plaid. How did you get involved with Plaid?

(Ted at 00:36:34) Well, you know, Plaid came into the industry, you know, kinda through this digital, really, I'll call it the digital revolution, you know, launched by a couple of things. You know, home banking started it, started the wheels, you know, moving, but the smartphone really is what kinda put everything on steroids. So to enable what's really enabling this whole digital is the move as people are moving technology to services oriented architecture and delivering services and APIs. You know, at Jack Henry, we've had APIs for twenty five years, but they were, you know, they were more message based type service—well, I won't call them services. It was more message based type exchange.

(Ted at 00:37:25) Services and, again, we actually did demonstrations when we rolled out our services for a core platform showing people what used to take a 100 lines of code I could do in two. So simplifying it through APIs, using it for ourselves, and then making it available, you know, into the market. Plaid came in as all this digital revolution kind of exploded and you had these tech companies out there wanting to sell their products and integrate back to the core systems or that primary banking platform. But what they were finding is, you know, it was tough because that was pretty much a closed environment. The banks would choose who they would allow to integrate to them.

(Ted at 00:38:16) It varied dramatically from the banks. So to help those fintechs, you know, Plaid kind of set up a hub to be the middleman, provided more modern APIs on one side to the fintechs, and then on the back side, they went and did the integration to the primary, not just cores, but a lot of the products that are out there that these fintechs would want to access. So in the early iteration of that, they did something that is not new and has been around as long as my career, thirty-five years. They started doing screen scraping. So, you know, screen scraping works, but it's not very secure and it's got some risk to it.

(Ted at 00:39:12) So with screen scraping, a consumer would give their credentials to the fintech, you know, the fintech or Plaid, either one, whichever one. Then they would pull the information off of the screen just as if they were you and it was your desktop. Couple of challenges with that. The first one being, if you change the screen in any way, it'll crater the application because the application is looking for things in very specific places. So if, as the provider of that screen, you move things around, you just kind of scrambled everybody's code and things start working or stop working. The other thing is, if you give your credentials to a third party to access on their behalf, as a core system provider, we don't know that it's not you.

(Ted at 00:40:10) So you've got this third party that's accessing the system using your credentials. We think it's you. So they are entitled to all the authorization that you are as a consumer. So they can not only pull data, they can do transfers. Even now, they could do external transfer requests.

(Ted at 00:40:33) There's a lot of capabilities that made it ripe for fraud. So the industry's response to that was to come up with a way to connect and authorize the servers so that the servers could talk to each other and you could authorize it. And that's really the project with Plaid. We implemented, if you're familiar with the technology, OAuth 2 and OpenID, so that a user, you know, when somebody wants to sign on to a fintech application that's out there, they basically are, they'll go through Plaid as a hub. They'll input the, well, actually, they come into Plaid. Plaid will then prompt them to input their user ID and password to get authorization to approve letting the servers talk to each other.

(Ted at 00:41:26) And then the credentials are basically forgotten and not stored. So then we now know who's accessing. We know it's not you. And we can selectively secure what it is we allow them to have. So if all they're looking to do is access your account balances for some kind of aggregation, then we're only going to allow them to draw the balances.

(Ted at 00:41:52) If they can transact through the core system, do transfers, those types of things, then we can enable it. But now we know who they are and we've done it through a secure connection. So that's really the exciting thing that Plaid has really enabled, you know, is through acting as this hub in the middle, is enabling the fintechs to minimize their effort and then provide that bridge to the back end systems and make it secure for our consumers. Because one of the biggest challenges we fight in the financial services industry is the fraud. People trying to get into your account, hack your account, steal money, you know, transfer money out, do wires out, those kinds of things. Is that helpful?

(Joel Beasley at 00:42:45) Yeah. I built these systems previously at a financial software company where

(Ted at 00:42:49) Okay.

(Joel Beasley at 00:42:50) we would have to screen scrape things like, what were they? I remember the website was like Security Benefit. There would be these insurance-type products and they didn't have any sort of API and they were very old and we actually had to log in, download a PDF, and parse the PDFs because, you know, certain companies didn't support that. And we ended up using Plaid at one point in the organization. But before that, we had built all the tools to screen scrape and then we had a team and they would monitor when the connection broke because they made an HTML update.

(Joel Beasley at 00:43:23) Right? And so that was really the back end system that we had built was monitoring when these connections broke and then building a visual interface for people to be able to create these connections. So we didn't need a software engineer coding it. We could have someone just visually doing it. So we built those types of systems, but I was curious. So the benefit to Plaid, and so correct me if I'm wrong, so Plaid comes to you and wants to do this integration because they could already be doing some screen scraping with the customers. So they get these 1,800 or 7,000 customers and benefit to you is a security perspective because now you know it's coming from Plaid and you get to put the correct controls in place. So there's this interesting security. Was there money that exchanged hands?

(Joel Beasley at 00:44:09) I don't know if we can talk about it, but

(Ted at 00:44:11) No. No. No money exchanged hands. It really, it's for the benefit of the whole group because it's a benefit to the fintechs because it makes it much easier for them to connect through the back end. It is great for us because we can do what we need to do, which is help our financial institutions secure the consumer accounts and reduce fraud against the accounts.

(Ted at 00:44:42) So, and then, of course, the consumer themselves. You know? And it also, the other thing that's happened is the capabilities that are available have just exploded. You know? So trying to do screen scraping, you know, with all the things you can potentially do now that can be made available through services and are available through services, everything from card controls and bill pay, all the things that are now available through the services, you know, can get consumed by the fintechs.

(Ted at 00:45:18) Because, you know, when you think about what's out there on the fintech side, it's predominantly the mobile apps or the digital apps, but there are so many flavors of what can be done. You know, it's people who just want to pull data to do personal financial management. There are applications like a Venmo. You know, when you link your Venmo account to your bank account, you don't know it, but Plaid is in the middle. You know, Venmo makes a connection to Plaid.

(Ted at 00:45:51) Plaid connects, you know, to many vendors, but when they connect to Jack Henry, the potential is there for us to bring 1,800 core customers that they've now brought a connection to. So, you know, getting all those connected, and you know, it wasn't that it wasn't possible. It just wasn't efficient and cost effective. Now it becomes very efficient and cost effective, which is what's driving this explosion of fintech solutions out there that can be very specific point solutions that can now integrate back to your banking system.

(Joel Beasley at 00:46:27) Yeah. Like I can set it up to round off to the nearest dollar and do a savings program.

(Ted at 00:46:34) All kinds of stuff. And again, more than just basic pulling data, you know, is being able to do things. You know, you've seen the commercials where, you know, you left your card at the restaurant and you're going to flip a switch on your mobile phone or smartphone and disable your credit card. You know, that's got to run through the rails all the way back, you know, into the core system and the card providers to be able to turn those cards off. Because it could be a credit card that needs to go to the Visa network or the Mastercard network, or it could be a debit card on your checking account that needs to go back to the core system and turn that off.

(Ted at 00:47:19) You know, it's a simple thing, but a lot of things have to happen to enable that kind of capability.

(Joel Beasley at 00:47:25) Where, let's extend this out five, ten years. What's the future? Where's financial going?

(Ted at 00:47:31) Yeah. Well, I think, well, kind of where we are today is most of the applications that consumers use are selected and provided by the financial institutions themselves. They offer their mobile app or their home banking app, you know, that you can use. What we're seeing, I think it's really just started, is this transition of the consumers picking the app they want. You know, they're not being forced to take the Chase app, Bank of America app, or whatever your local bank or credit union's app.

(Ted at 00:48:10) You know, you want Venmo as a good example. You're not going to get that from your local bank. You're going to get that directly from Venmo. That's a Venmo to consumer relationship that connects back to the bank. So lots of applications that a consumer can select, you know, that's got the things they're looking for.

(Ted at 00:48:33) They like the user interface and how it operates and interacts. They like what it does, whatever point programs are tied to it. They want to make the choice. So I think you're going to see more consumer selection of what those end apps, what they use and look like. And I think the other thing that really in support of that that's happening in our Banno Digital platform is really supporting this and already evolving is, you know, so you have the capabilities of the core and then you have this mobile, I'll call it the digital platform that really supports all the enablement of the things you can do and provide, which could be statements, your tax notices, bill pay capabilities.

(Ted at 00:49:28) It could be, you know, your bank statements, or not bank statements, your check images are captured somewhere else. Bring all that together and make all those connections, third party connections. That's done for us in the Banno Digital platform. And historically, they've been the endpoint or the end application.

(Ted at 00:49:53) What we're now seeing is they too are becoming API based so that the fintech apps can consume their services and provide those ultimate applications. So you're going to see the large digital providers. And in our market, you know, that's Q2, that's Alkami, our Banno platform, you know, probably the three major providers. They will mature to become platforms themselves supporting other people who will put the pieces together and create unique applications. So that's really where we've already got one leg headed that way.

(Ted at 00:50:41) That's going to be the maturity over the next couple of years. But it's going to be, you know, you're going to pick the apps versus, you know, the financial institution telling you what app you're going to use. And we're just seeing the number of apps that are available that want that core data, you know, is just shooting through the roof. Everything you can imagine, it seems like there's a fintech that's writing an application to be able to do that. And you may, instead of having a single banking app on your phone, you may have four or five that do different things.

(Ted at 00:51:20) One may do budgeting, you know, another connecting to your Venmo account, you know, another for bill pay, another for your chosen banking experience. So I think you're going to continue to see that. You're going to see the cost of that integration get driven down, you know, as we make more and more services available. And, again, I think you'll see the security continue to evolve to give that end consumer the ability to control, you know, who can access their data and kind of limit the control around if it's for budgeting, you know, you can't transact. You can only, you know, look at my balances or look at my history, that kind of thing.

(Ted at 00:52:05) So I think from the digital perspective, that evolution's happening now. We're also seeing within our business the other complimentary products that I mentioned are now all moving forward with creating, you know, more robust service-based APIs so that you can do, you know, you can do account opening, but you're typically limited to the user interface that was written by that product. Now you're going to see APIs that become available that allow someone else to put together all the pieces and let you open accounts, do different things, and it's all going to be a seamless experience. And that's really what people are driving towards is that unified experience. So it doesn't feel like we call it single sign-on where you may, bill pay is a good example.

(Ted at 00:53:04) You're in home banking. You want to pay your bills, and you all of a sudden, you're in a completely different user experience because it flows differently and works differently. That's because it's a different application. Through APIs, that's all going to change so that it all becomes very seamless, putting the UI control all the way out there at an endpoint. So I think we're going to see that.

(Ted at 00:53:33) I think we're going to see some consolidation. We've, you know, the good news is we've got hundreds of fintechs creating applications. Some will make it, some won't make it. You know? But it's enabling a lot of things.

(Ted at 00:53:48) The other thing you're going to see, and it's already started, is, you know, the branding where, you know, you can go to Google or Amazon and, you know, open a savings account or a checking account. You really don't know where that is, but there's actually a bank that's backing that in the background. It may be branded or white labeled, but you're going to see, I think, more white labeling of those capabilities. But, again, through regulation, you've got to have a bank in the background, a bank or a credit union.

(Ted at 00:54:26) You've

(Joel Beasley at 00:54:27) seen, you've seen an explosion of every service starting to offer banking.

(Ted at 00:54:32) Well, the potential is there. You know, it could be your electric company. You know, whoever you have the affiliation with, you know, can make it seamless. You know, they can, you know, it's wherever you interact. Could be Walmart.

(Ted at 00:54:48) You know, could be, you know, more of a regional player that, you know, wants to provide those capabilities. So we're seeing that. We're seeing, you know, what we often call challenger banks or neobanks, which are these small specialty single product that are doing deposit collection. Somebody like a Chime is a good example. And again, I don't know how much you've dug into Chime.

(Joel Beasley at 00:55:18) A little bit.

(Ted at 00:55:18) Chime's an incredible story. They have 8 million accounts. But what a lot of people don't know is the back end is actually a bank provides the back end. So their back office is provided by a bank. They control the front end.

(Ted at 00:55:34) But their product offering, you know, is very simplistic. It's basically a pretty straightforward depository account. We're seeing consumer lending, you know, basic consumer loans, very basic. We're also seeing a couple of products come out that are targeting commercial customers, small, medium businesses. You know?

(Ted at 00:55:59) So very targeted in what they're doing. And, you know, I usually get asked this question is, you know, when does somebody become a bank? And, you know, the challenge people have from a banking standpoint is banks have grown up to offer a whole suite of products that makes it very hard for a fintech to replicate everything that a bank does. You know? Because you've got for deposits, you've got everything from, you know, savings accounts, checking accounts, money market accounts, you know, certificates of deposits.

(Ted at 00:56:36) You have IRAs. You know? You have spending accounts tied to your medical programs. You have, you know, that's just on the deposit side. Flip over to the lending side, it gets even more complex.

(Ted at 00:56:51) So that's why you're not seeing, well, it's why you're seeing larger banks and even the mid-sized banks continuing to operate on legacy platforms because the breadth of capability of those legacy platforms, you know, and all of the different features and services that they provide. It's hard to replicate that. But you're seeing the fintechs, you know, are doing rifle shots to pick pieces out of that and deliver solutions. And they're able to do it without geographic boundaries, you know, and that they can go after the entire United States for deposits, as an example, you know, that offer a single account or money market account and offer a little higher than normal rates, but they actually don't give you checks. They only give you a debit card which generates interchange income for them to offset their cost.

(Ted at 00:57:52) And that's where they actually make their money is they get a little piece of the interchange income off of that debit card. So it's, I don't know. It, I would tell you that there's just so much going on in the financial services space today. It's, to me, it's exciting to watch it and see it and, you know, see how it's going to play out.

(Joel Beasley at 00:58:17) Yeah. As you were talking earlier about the way I took it was an infrastructure play by making you have you're tied into 1,800 core customers, right, through using your product. So if you make these APIs available and they can choose to turn them on, it's actually interesting to see how I would see the Wells Fargos and the Bank of Americas, the big single ones. I would see those as probably wanting to hold back to retain their brand, to keep that won't be the one app. But then you've got this other part of the market that are these innovators that want to build that custom experience, that small group of passionate people that just want to make something amazing that they love, that's simple.

(Joel Beasley at 00:58:57) Right? And that can outcompete the bigger, slower moving brands. And by you guys over here supporting with these 1,800 regional branch banks, you're giving them, you're pushing, you're creating pressure in the market because you will adopt that first. The experience will then, those companies will be able to exist. Those front-end simple apps will be able to exist because they have access to maybe your network and a couple other networks of not the big banks.

(Joel Beasley at 00:59:27) And then that'll force the larger ones to move into that space eventually because they'll start losing customers to regional banks because people want these better features.

(Ted at 00:59:37) Yeah. And I would tell you even from the other side where the big banks introduce new capabilities like Zelle, you know, they actually kind of held that for themselves for a while too because it's formed with the larger banks. They have just now, I say just now, within the last year really, opened up Zelle to the next tier of financial institutions. And we now offer that to our customers.

(Ted at 01:00:05) I think we have about fifty, sixty customers live on Zelle now, which is kind of an alternative to Venmo for person-to-person type payments. But it keeps the balances in the financial institution, but it allows that P2P settlement of transactions. After lunch, you know, you can email somebody and do an exchange that results in moving money from their bank account to your bank account. So it goes both ways. We want to keep our customers competitive through what I consider more of an aggregation model.

(Ted at 01:00:44) Any one of our 1,800 customers, even the larger ones, can't outspend Chase and Bank of America and Wells Fargo. But when you look at them collectively, you know, then we can help them be competitive and stay viable, candidly.

(Joel Beasley at 01:01:02) A force to be reckoned with. We'll amp it up a little bit for you.

(Ted at 01:01:06) There you go.

(Joel Beasley at 01:01:09) Oh, wow. Ted, this is great, man. We made a podcast. How do you feel?

(Ted at 01:01:14) Hey. It's great. I loved it. As you can tell, I love this business. I'm passionate about it.

(Ted at 01:01:20) It's a, you know, it's an exciting place to be. There's a lot going on in the industry right now.

(Joel Beasley at 01:01:27) Is there anything that you wanted to get out that we didn't discuss yet today?

(Ted at 01:01:33) Actually, I think we generally covered it all.

(Joel Beasley at 01:01:37) Okay. Cool.

(Ted at 01:01:38) I think we're there.

(Joel Beasley at 01:01:39) Go sign up for, go become a customer of Jack Henry. Yeah. We'll put the links in the show notes. Yeah.

(Ted at 01:01:44) There you go. There you go. We're always looking for good people. Good passionate people.

(Joel Beasley at 01:01:53) Thank you so much for listening. And if you found this episode useful, please share it with a friend or colleague who you think would get value from it. And if you have topics that you'd like to hear discussed on the podcast, either add me on LinkedIn or send me an email [email protected]. Every time I get an email or LinkedIn message, it absolutely makes my day and inspires me to keep going.