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Jack Henry reported that its fiscal second-quarter net income rose 7%, to $38.5 million, from a year earlier because of increased revenue from support and services.
February 1
Core banking provider Jack Henry & Associates Inc. logged a
Its clients are also seeing little effect of the Durbin amendment to the Dodd-Frank Act, which had the potential to curb debit-card use.
"The largest contributor to [revenue growth] was our electronic payments revenue, which grew 9% compared to the prior-year quarter and 10% year-to-date, and represents 33% of total revenue," Tony Wormington, president of Jack Henry, said during a conference call with analysts on Wednesday morning.
Jack Henry's revenue totaled $255.9 million, an increase of more than 5% from the same quarter a year earlier. Net income for the quarter increased 7% to $38.5 million compared to the same quarter a year earlier. Its fiscal second quarter ended Dec. 31.
Jack Henry, of Monett, Mo., has picked up some business from other core banking competitors, and it's making the most of the continued need by its community bank and credit union customers to offer payment services the largest banks have sewn up for close to a decade, experts say.
"With Jack Henry you have a smaller base of revenues than their two largest public competitors, FIS and Fiserv, so it's easier to put up higher growth rates, but it also indicates they are taking share," says Peter Heckmann, senior research analyst for Avondale Partners LLC.
As a component of the electronic payments business, Jack Henry reported 18.6% growth in bill payment transaction volumes from the same quarter a year earlier, and 13% growth in ATM and debit-card processing volumes.
The double-digit growth Jack Henry experienced in bill payments is more than twice the growth Jack Henry has seen in previous quarters, and it is about three times the growth rate of consumer bill-payment transactions reported by larger banks, experts say.
"Smaller banks and credit unions have lower penetration in bill payment, so they have a faster growth trajectory," says John Kraft, an analyst for D.A. Davidson & Co., who says an additional success story for Jack Henry's second quarter is core banking, where its OutLink data processing service grew about 4%.
"Core processing share gains are hard to come by," Kraft says.
Jack Prim, chief executive of Jack Henry, says part of the growth has come from converting to bill payment about 50% of the customer base of a service provider that markets products and services to 60 credit unions.
Jack Henry has also benefitted in a fashion from the Durbin amendment. The amendment's debit-fee cap has had minimal impact on the financial institutions Jack Henry serves, which primarily have less than $10 billion in assets and are thus exempt from the limit on debit-card interchange.
"Most seem to believe that this carve-out will lose its effectiveness over time, but as of yet, it has not been a deterrent to spending," Prim said during the call.
Whereas most large banks have thrown their efforts into shifting consumer spending from debit to credit, Jack Henry appears to be reaping the benefit of the opposite trend from smaller financial institutions.
"[Larger] banks are reintroducing their credit-card portfolios and focusing on pushing credit, but consumers have been told for ten to fifteen years that debit is a good thing," says Gwenn Bezard, founder and research director of Aite Group.
Smaller banks and credit unions exempt from Durbin could actually be in a good position to market reward programs linked to debit cards, Bezard says.
"Clearly payments have a lot of organic growth," he says. "Even if you do nothing you will see growth in electronic payments, and from the cyclical trend of consumers moving away from paper."
