FinTech Pioneer Zaps Bank Hackers

Jon Markman

If you’re running a tech startup, hacks are devastating. If you’re running a financial tech startup, hacks can be fatal.

ZD Net reported Sunday that Dave.com, a fintech company started to eliminate banking pain points like overdraft fees and simply budgeting, was the target of a massive hack.

Now the company is scrambling to reassure users that everything is fine.

The concept for Dave.com is simple. Signup for a $1 per month membership, enter your financial information, and the Los Angeles, Calif.-based company will shoot you a text message if upcoming coming expenses put you in danger of overdraft. If you’re really running low on cash, the company will even provide a 0% interest, $75 cash advance.

Dave.com makes money by collecting monthly subscriptions and optional tips.

However, to make all of the magic behind the scenes work, Dave.com needs to connect with subscribers’ checking accounts. The software also needs a wealth of information like real names, phone numbers, emails, birth dates, and home addresses.

According to ZD Net, that information, along with encrypted social security numbers, is now showing up on RAID, a hacker forum. The database includes details on 7,516,625 Dave users.

Fintech companies, especially smaller ones, don’t get a lot of leeway to protect user data. Failing usually has dire consequences. It’s one of the inherent risks with smaller tech businesses in general.

However, there is a legitimate fintech revolution underway. Smartphones are broadly connected computers with biometric and GPS sensors. In theory, they should be way more secure than a paper check or a bank account passbook.

Jack Henry & Associates, Inc. ((JKHY) -Get Report) began by helping regional banks and credit unions control risks and manage regulatory filings. Since 2009, the Missouri company has been more focused on helping customers securely transition to cloud-based, online banking.

Before COVID-19, business was predictable, with steadily increasing sales and rock-solid margins. Revenues in 2019, for example, reached $1.55 billion, up 5.6% year-over-year. Gross margins were 44%.

In the aftermath of the novel coronavirus, business is booming.

Customers are demanding a way to manage money and pay bills online. Regional financial institutions are looking for innovative, cloud-based solutions that play nice with desktop computers and smartphones. But they want safety, too.

Jack Henry has a long history of protecting client data. That goes a long way in the current climate.

On May 5, the company reported record sales, operating income and profits for the third quarter. CEO David Foss told analysts that bookings are up 12% from last year’s record run. And total sales advanced 11% year-over-year on the strength of higher data processing, hosting fees and software usage.

It’s a trend that is likely to continue.

A PricewaterhouseCoopers report in 2019 found financial institutions are searching for partnerships with companies that can navigate regulations and data security. Some 43% said cloud-based technology would transform the way services are delivered within the next two years. PWC predicts this will lead to a tidal wave of new spending.

Jack Henry shares trade at 47 times forward earnings and 8.6 times sales. While neither metric is cheap, this steady, relentlessly innovative and pioneering fintech has never been cheap. The multiples are within the historic range despite the terrific outlook.

More important, given the firm’s stellar history of data security, its services are likely to be more in demand than ever going forward. It’s a buy on pullbacks for growth investors.

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