Jack Henry & Associates, Inc. (JKHY)

How it makes money

Most revenue is recurring: banks and credit unions pay ongoing fees to process transactions and host or license the core system, rather than a one-time purchase. On top of that base, Jack Henry sells payment-processing services billed by transaction volume, plus additional software — digital banking, lending, security tools — that can be added to an existing core system. Because switching a core system is slow and risky for a bank, renewal rates are high and revenue is predictable from year to year.

Revenue by segment

A bank's core system holds every account and transaction it has; migrating to a competitor means months of parallel testing, staff retraining and regulatory risk, all for a system customers barely notice when it works. That friction, more than any feature, is why institutions stay on the same core provider for years.

Banks and credit unions must keep processing deposits, loans and payments in any economic environment, so the recurring, contract-based core of Jack Henry's revenue holds up in a downturn. The more discretionary parts — new hardware, project-based implementation work — are more exposed to a bank's own budget cycle.

Key risks

• Consolidation among customers — The banking industry has consolidated for over a decade through mergers. When two client banks merge, one core system is usually retired, and Jack Henry can be on either side of that decision.
• Competition from larger processors — Jack Henry competes against larger financial-technology providers with more resources for pricing, acquisitions and new product development, in an industry that keeps consolidating around fewer, bigger vendors.
• Reliance on the health of small and mid-sized banks — Customers are community banks and credit unions rather than the largest national banks. Regulatory or competitive pressure that shrinks this segment of the industry shrinks Jack Henry's addressable market with it.