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

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

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“The crux of the community bank and credit union model is tofocus 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 paneltitled,  “Innovation: The Key to Smaller FI Survival?”

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Bankers and credit unions may resist that message. Notconsumers, said Steve Nogalo, an NCR vice president who joined withPayPal and $1.7 billion, San Jose, Calif.-based Tech CU inannouncing an ATM that gives users the option to, with a few clickson the screen, use the ATM to send cash via PayPal to just aboutany mobile phone number in the U.S. “Consumers have much higherexpectations than ever from their financial institutions, and theyare much less loyal,” said Nogalo. “Innovation is the future ofbanking.”

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

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

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

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Just when a level of confidence is building, feast on this badnews. Javelin founder James Van Dyke, in a panel titled “TheShrinking Middle Class of Banks,” posited the worrisome thesis thatwhile the huge, trillion-dollar institutions are well-positioned,by virtue of cash flow and in house smarts, to offer theircustomers the very best and most compelling technologies, smallerfinancial institutions are lagging behind. “The lack of newtechnologies will negatively impact small institutions, they willsuffer a lot of instability,” predicted Van Dyke.

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Which is a longhand way of saying they will die.

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

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And the NACHA panels offered glittering hope as panelists talkedabout ways to reinvent banking, putting it into formats that 21stcentury consumers want.

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One piece of good news from NACHA. Right now, there is littleevidence of meaningful, organized fraud occurring over mobilechannels. Better news for financial institutions is that mobilebanking actually puts users more in touch. “Our mobile users log inevery day,” said Jeff Dennes, a Huntington National Bank seniorvice president. “Our online only users might log in six or seventimes in a month.”

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And then there is the ongoing reinvention of what banking hasbeen about and this is the shift, now well in process, away fromleather wallets and paper money and into digital wallets inassociation with smartphones.. That revolution is not happening inan eye blink. Panelist George Peabody, an analyst with MercatorAdvisory Group in Boston, indicated he expected it all to cometogether in 2016.

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

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

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

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Schlaff offered up key lessons from Citi's research into digitalwallets. Focus on your customer, affordability is key, simplicityis powerful, start simple then build out, focus on the entireexperience, and connect to the ecosystem.

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

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

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

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And those who provide the best experiences will win. 

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