On Tuesday, Jack Henry (NASDAQ: JKHY) announced three new integrations with open banking providers Plaid, Mastercard-owned Finicity, and Fidelity 2020 spin-off Akoya. Jack Henry (JHA), whose SaaS offerings – Jack Henry Banking, Symitar, and ProfitStars – serve roughly 8,500 financial institutions (FIs) and 6 million consumers nationwide, is setting a benchmark precedent in its recognition of the importance of open banking, and how information sharing efficiencies are captured by the interoperability of the these three fintech platforms. Not only do Jack Henry’s actions instantiate the need for open banking solutions for smaller FIs – as a function of bottom-up demand from consumers-, but its scheme, in what appears to be the insertion of Akoya between Plaid, Finicity and the financial institutions, may just become a replicable framework for other FIs as they continue to solve for open banking demand.
Jack Henry’s client base is predominantly comprised of small regional and community banks, and credit unions. These clients lack the financial resources of the national and global financial institutions, and are less capable of acquiring or building their own open banking infrastructure for online and mobile environments. This is the essence of the value that Jack Henry has traditionally provided to smaller FIs. JHA cemented its commitment to digitalization in 2014 when it acquired Banno (today branded under Jack Henry as Banno Digital Toolkit), whose core offering is innovative digital engagement solutions for banks and credit unions. Banno Digital ToolKit provides the back-bone for Jack Henry’s online and mobile banking user interface that consumers are familiar with today.
Fast forward to the open banking movement that we’re currently experiencing, and there’s no doubt that Jack Henry’s strategy of integrating Finicity, Akoya, and Plaid is very thoughtful and astute. But to the not-so-knowledgeable observer, these three open banking platforms are not the same. Finicity and Plaid are very similar, but Akoya is a different animal altogether. Finicity and Plaid are open banking data aggregators and create the conduit via which financial institutions speak to fintech applications to share consumer financial information. Akoya is an aggregator too, but not in the same way. Akoya provides FIs with a platform into which fintechs and aggregators can integrate.
As currently constituted, one of the gating factors for open banking adoption is the ability for FIs to connect to many fintechs at once, and vice-versa. Each connection requires its own integration. This is where Plaid and Finicity add value by aggregating consumer financial data from FIs and routing the shared data to the fintechs who need it, increasing connectivity and decreasing integrations.
But Plaid and Finicity create their own inefficiency – think MX, Yodlee too – as they each require their own integration with FIs and fintechs.
Akoya is positioning itself as the integrator of aggregators and fintechs. FIs, fintechs, and aggregators only need the one Akoya API connection to access each other. Akoya is a data “switching station”, offering maximum connectivity with minimal integrations.
So, the Plaid, Finicity, Akoya partnership with Jack Henry is, in a sense, a “no brainer”. It provides Jack Henry’s smaller FI customers with the same efficiencies in financial data sharing that the largest FIs have through proprietary open banking architectures.
But that’s not all.
JHA’s use of Akoya brings to bear a few more value-added features for customers and consumers.
Because Akoya’s integration with FIs is via API, and not a screen-scraping technology like Plaid’s Screenless Data Collection, it provides users with enhanced data transmission security as the FI’s software and the fintech’s software communicate directly with each other. This is no small issue as the three types of data typically shared in an open banking scheme – transactional, account information, and identification – are extremely sensitive. The same API infrastructure also provides consumers a much easier method of permissioning the access of fintechs because it gives consumers the ability to “turn on” and “turn off” data sharing inside the same banking portal that Jack Henry has been providing them for years. This is in comparison to Plaid and Finicity where consumer control is only available by entering each application directly.
The new Jack Henry partnerships announced this week goes a long way towards answering one of the more prevalent questions surrounding open banking. Specifically, how were smaller financial institutions with limited capital resources going to compete with larger FIs in providing consumers a rich, seamless, digital banking experiences with open banking functionality? The answer is, they’ll seek the requisite technology solutions from quality financial technology partners like Jack Henry, who in turn will seek quality financial technology partners like Plaid, Finicity, and Akoya.
The other thought that comes to mind is how this development underscores the momentum of open banking adoption overall. There’s been much to prognosticate about regarding open banking, in terms of how it would manifest itself in a new marketplace where traditional, brick-and-mortar incumbent FIs are vying for business with all-virtual neo-banks. Though not conclusive, the Jack Henry, Plaid, Finicity, Akoya news does suggest that adoption will continue to gain purchase through both types of FIs.