US bank consolidation is accelerating again, and the EverBank and WaFd combination announced this week, creating a lender of roughly $75 billion in assets, is the visible tip of it. The reflex reaction for anyone holding core banking software is negative: two customers become one, so the addressable base of American banks and thrifts, already down from over 18,000 in the 1980s to under 4,500, shrinks a little further. That reflex is the wrong way round for the next several quarters, and the reason is written into the contracts themselves.
Core processing agreements run five to seven years and are explicitly priced on the assumption that the bank stays. If a client leaves early, whether because it was acquired or because it switched vendors, it owes a termination payment that typically covers a large share of the remaining contract value. In the industry this shows up under a specific name: deconversion fees. Jack Henry discloses them as their own line in its revenue disaggregation, Fiserv and FIS book equivalent termination revenue inside their banking segments. The critical feature is margin. There is no incremental cost of delivery attached to a contract buyout, so the money drops through to operating income almost intact. A merger wave is, mechanically, a wave of these payments.