# Jack Henry _The discipline of staying in your lane._ --- ## The paper napkin In 1976, Jack Henry was a data processing manager at Gillioz Bank & Trust in Monett, Missouri - a small town in the Ozarks. He'd set up the bank's first computer, an IBM System/3, and taught himself to code because software for community banks barely existed. When Gillioz was acquired and his job eliminated, he asked for a copy of the software instead of severance. He got it. And with his friend Jerry Hall - believed to be the only other computer user in Monett at the time - he sketched a business plan on a paper napkin. They rented space in an engine repair shop for $40 a month, borrowed a computer, and started selling data processing to community banks. First year revenue: $115,222. Nearly fifty years later, Jack Henry serves 7,500 financial institutions, generates $2.4 billion in revenue, and retains 99% of its customers annually. The paper napkin company never left Monett. --- ## Choosing the niche Jack Henry made a defining choice early: serve community banks and credit unions with under $50 billion in assets. This is [[Niches]] logic at its purest. Deliberately exclude the biggest 40-50 banks - they have complex requirements, vast internal tech departments, and crushing pricing pressure. Also avoid institutions under $250 million - too small to justify the sales effort. This left them with a specific customer: local banks big enough to need real technology, small enough to lack the resources to build it themselves. These institutions process millions of transactions daily. They can't afford downtime. They can't afford data breaches. And they can't afford to fall behind on digital capabilities while competing with Chase and Bank of America. Jack Henry's entire operation is built around this customer. When Fiserv and FIS diversified into merchant acquiring - chasing bigger markets, flashier growth - Jack Henry stayed put. They didn't follow. They went deeper. The result is focus that compounds. Every product decision, every engineering hire, every acquisition serves the same customer. There's no internal debate about which market matters more. No resource allocation battles between divisions serving different customers. The entire company points the same direction. --- ## The existential dependency Core banking software is the operating system for a bank. Every transaction - deposits, withdrawals, loans, payments - flows through it. Switching providers means migrating decades of financial data, retraining every employee, and running parallel systems for months while praying nothing breaks. Banks treat their core provider as an existential dependency. The [[Switching costs]] aren't just financial - they're operational and psychological. A failed core conversion can destroy a bank. Everyone in the industry knows the horror stories. Jack Henry has built a business on this reality. Contracts run five to seven years. Ninety-one percent of revenue is recurring. When a customer does leave - which happens almost exclusively through acquisition by another bank - they pay deconversion fees that cover the remaining contract value. Even exit is profitable. About 200 core processing contracts get bid annually across the industry. Half stay with their current provider. Of the half that switch, many are moving between the Big Three - Fiserv, FIS, and Jack Henry - not leaving the oligopoly entirely. The installed base barely churns - a textbook case of [[The churn ceiling]] working in the vendor's favour. This isn't lock-in through legal tricks or dark patterns. It's lock-in through deep integration. The more services a bank runs on Jack Henry - core processing, payments, digital banking, lending, risk management - the more dependent they become. Jack Henry calls this "ecosystem stickiness." Cross-sell isn't just a growth strategy; it's a retention strategy. --- ## While competitors diversified In 2019, Fiserv acquired First Data for $22 billion, becoming the fourth-largest merchant processor worldwide. Later that year, FIS bought Worldpay for $43 billion. Both companies made the same bet: merchant acquiring was the future, and core banking was a mature business. Jack Henry watched and did nothing. This is [[Counter-positioning]] through restraint. The FIS bet went badly. Worldpay turned out to be a mess of dysfunctional acquisitions that fell apart during Covid. Investors revolted. In 2023, FIS announced a spinoff to separate merchant solutions from banking - essentially unwinding the strategy. Fiserv fared better but lost focus. Both companies now spread resources across banking, merchant acquiring, and various fintech initiatives. Customer satisfaction surveys consistently show community banks preferring Jack Henry's service over the larger competitors. Jack Henry's CEO at the time, David Foss, was explicit about the strategy: serve community banks and credit unions, full stop. No merchant acquiring. No banking-as-a-service plays. No distractions. The current CEO, Greg Adelson, continues the same philosophy: "Innovation and execution" within the chosen niche. The discipline shows in the numbers. Jack Henry's organic growth in core banking has consistently outpaced FIS's banking segment. Customer satisfaction is higher. Retention is higher. And the company never had to explain a $43 billion writedown to shareholders. --- ## Technology without disruption Vertical software companies face a recurring dilemma: how do you modernise technology without forcing customers through painful migrations? Jack Henry's answer is unusual. They're rebuilding their core systems as cloud-native, API-first services - but designed to work alongside existing on-premise deployments. Banks can adopt new capabilities incrementally, without a forklift upgrade. The new platform, built in partnership with Google Cloud, offers features legacy systems can't match: 99.999% uptime targets, real-time fraud detection, zero-trust security. But the migration path is gradual. A bank can move their wire processing to the cloud while keeping everything else on-premise. Next year, maybe general ledger. The full transition might take a decade - and that's fine. This matters because it respects operational reality. Banks can't flip a switch and move to the cloud overnight. They have regulatory constraints, integration dependencies, staff training requirements. A technology vendor that demands immediate transformation isn't serving the customer; it's serving its own roadmap. The Banno digital platform shows similar thinking. It's a modern digital banking experience - mobile apps, online banking, personal financial management - but it plugs into existing Jack Henry cores without requiring a core replacement. Banks can offer competitive digital experiences while keeping their back-end stable. More than 950 fintech partners now integrate through Jack Henry's open APIs. The company has positioned itself as the integration layer for community banking - not just the core provider, but the platform that connects banks to the broader fintech ecosystem. --- ## The compound effect Jack Henry's strategy produces a specific kind of compounding. Each year, existing customers add services. A bank running core processing adds payments. Then digital banking. Then lending. Then risk management. Revenue per customer grows without new sales effort - a form of [[Customer-funded growth]] where existing relationships fund the next layer of revenue. Each service deepens the relationship. The more a bank runs on Jack Henry, the harder it is to leave, the more likely they are to add the next service. Retention begets cross-sell begets retention. Each year, the ecosystem grows. New fintech integrations make the platform more valuable. More value attracts more banks. More banks attract more fintechs. Network effects compound. None of this is fast. Jack Henry grows at 6-8% organically - respectable but not exciting. What's unusual is the consistency. The company has compounded steadily for decades without blowing up, without dramatic pivots, without bet-the-company acquisitions. The paper napkin company stayed in Monett, kept serving community banks, and let discipline compound. --- ## What this teaches Jack Henry illustrates several principles for vertical software: **Choose your customer, then stay.** The temptation is always to expand - adjacent markets, larger customers, new geographies. Jack Henry refused. Fifty years later, they're still serving the same customer, and that focus is their competitive advantage. **Switching costs are built, not found.** Deep integration, multiple products, long contracts, critical workflows - each element raises the cost of leaving. This isn't about making it hard to cancel; it's about making yourself essential. **Let competitors defocus.** When Fiserv and FIS chased merchant acquiring, Jack Henry gained share simply by staying put. Sometimes the best strategy is watching others make mistakes. **Modernise without disruption.** Technology transitions that force painful migrations create opportunities for competitors. Gradual paths that respect customer reality build loyalty. **Compound through depth, not breadth.** Jack Henry's growth comes from selling more to existing customers, not from conquering new markets. Depth before breadth. The company isn't exciting. It doesn't dominate headlines. It processes transactions for small-town banks in Missouri and thousands of places like it. But it's done so for fifty years, retained 99% of customers annually, and built a business worth $12 billion. That's what discipline looks like at scale. --- **Connects to:** [[Verticals]]