BALTIMORE — Call this the loud message out of NACHA 2012: Financial institutions can choose to innovate. Or to die.

And the pressures are higher on community banks and credit unions for a painful reason.

“The crux of the community bank and credit union model is to focus on customer relationships. But now that is all electronic,” said Carey Whaley, a vice president at the Independent Community Bankers of America, who put on a panel titled, “Innovation: The Key to Smaller FI Survival?”

Bankers and credit unions may resist that message. Not consumers, said Steve Nogalo, an NCR vice president who joined with PayPal and $1.7 billion, San Jose, Calif.-based Tech CU in announcing an ATM that gives users the option to, with a few clicks on the screen, use the ATM to send cash via PayPal to just about any mobile phone number in the U.S. “Consumers have much higher expectations than ever from their financial institutions, and they are much less loyal,” said Nogalo. “Innovation is the future of banking.”

What is dying off? Old-style, analog interactions, said Ginger Schmeltzer, a senior vice president at SunTrust Bank, a big Georgia-based institution, on a NACHA panel with a direct title: “How the Mobile Channel Is Redefining Banking.”

Schmeltzer offered specifics. “Traditional branch usage is declining, as more clients interact with us online or with mobile devices. We are seeing a shift. We expect to see a bigger decline in branch visits when we roll out mobile remote deposit capture,” technology that lets users make a deposit simply by snapping a photo of the check with a cell phone.

One unexpected result of a steep growth in the mobile channel is that “digital clients are more loyal clients,” said Schmeltzer. They also are “32% more profitable and 53% less like to attrite.”

Just when a level of confidence is building, feast on this bad news. Javelin founder James Van Dyke, in a panel titled “The Shrinking Middle Class of Banks,” posited the worrisome thesis that while the huge, trillion-dollar institutions are well-positioned, by virtue of cash flow and in house smarts, to offer their customers the very best and most compelling technologies, smaller financial institutions are lagging behind. “The lack of new technologies will negatively impact small institutions, they will suffer a lot of instability,” predicted Van Dyke.

Which is a longhand way of saying they will die.

Or they will innovate, finding ways to keep abreast of the ever rising demands of customers, most of which seem technology driven, but all of which amount to demands for good service that lets every member get what he or she wants from a credit union. And exactly that, suggested multiple speakers at NACHA, is the formula for success. Listen to members, give them what they want and go them one better.

And the NACHA panels offered glittering hope as panelists talked about ways to reinvent banking, putting it into formats that 21st century consumers want.

One piece of good news from NACHA. Right now, there is little evidence of meaningful, organized fraud occurring over mobile channels. Better news for financial institutions is that mobile banking actually puts users more in touch. “Our mobile users log in every day,” said Jeff Dennes, a Huntington National Bank senior vice president. “Our online only users might log in six or seven times in a month.”

And then there is the ongoing reinvention of what banking has been about and this is the shift, now well in process, away from leather wallets and paper money and into digital wallets in association with smartphones.. That revolution is not happening in an eye blink. Panelist George Peabody, an analyst with Mercator Advisory Group in Boston, indicated he expected it all to come together in 2016.

But things already are happening. “We will see more change in payments the next five years than we saw in the prior 25,” said Chris Cox, a vice president with First Data, the Atlanta-based merchant processing company.

He added that “mobile wallets are about giving the consumer more control.”

It's also about giving more of more financial services, said Robert Schlaff, a Citibank manager. He indicated that today, globally, there are perhaps 1.8 billion bank accounts, but there are over 6 billion mobile phones and each of those phones, theoretically, could become a mobile wallet.

Schlaff offered up key lessons from Citi's research into digital wallets. Focus on your customer, affordability is key, simplicity is powerful, start simple then build out, focus on the entire experience, and connect to the ecosystem.

How would this work in practice? Schlaff drew a compelling picture, borrowed from Citi partner Google, which offers its Google Wallet cell phone product. But what is important, said Schlaff, is that the vision goes way beyond transactions.

Imagine a hungry cell phone owner, said Schlaff. He uses his Google phone to search for restaurants. He reads reviews of possibilities on Zagat, a review site owned by Google. He checks Google Offers, a Groupon competitor, for flash deals and discounts. Then he uses the phone to pay.

“This is about end to end experiences,” said Schlaff.

And those who provide the best experiences will win.

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