Can banks innovate incrementally, or do they require wholesale transformation?

That was the essence of the question pondered by first panel at Bank Innovation 2013, which took place this week in San Francisco.  Although approaches and opinions differed, it was agreed that the focus of banking needs to shift from a product-centered view to a customer-centered view. But how?

Brad Leimer (far left in the photo) of Mechanics Bank pointed to the threat of “just a few banks running the show,” saying that smaller banks have the opportunity to be closer to customers than the big banks do: “The level of intimacy at smaller banks is much tighter than at larger banks, and may not be scalable.” Mechanics Bank is based in Richmond, Calif. and has assets of about $3 billion.

Leimer threw down the gauntlet on online and mobile banking when he said, speaking of the industry as a whole, “We need to rethink the experience of banking with digital. What we’re delivering is still lacking.” More broadly, he said, “There is a breakdown in channels that is frustrating” to customers. This problem, he said, should be simple to fix.

In other words, in Leimer’s view banking today is failing the customer and needs to deliver an improved experience across all channels, particularly online, and the customer may well be better served at a smaller institution that is better scaled to meet his needs.

Jeff Stephens (second from left) runs Creative Brand, a branding agency, and Tribed, a banking services company that links customers by affinities, for example, Wag Bank, the checking account for dog lovers. Stephens emphasizes the emotion in banking — he told Bank innovation that Wag Bank is not a checking account but rather “an experience.” Stephens challenged the bankers in the audience, “What would we [financial institutions] do if we had no legacy to protect?” He also warned against equating, for example, a new mobile app with being innovative: “Technology does not equal innovation.”

He set everyone in the room thinking when he offered the following gem: “I think the future of banking will have nothing to do with banking.” This might seem paradoxical, but Stephens was pointing to the need for highly personalized customer service that can bring customers’ passions into their financial management, as his Wag Bank does.

Scott Zimmer is the head of digital and innovation at Capital One. He emphasized the importance of loyalty and benefits in keeping customers and keeping them happy. “When customers are in love with what you have, they ask for more,” he said. The clear message here is that the experience must be buolt around meetign the customer’s needs.

Alicia Moore heads up Wells Fargo‘s ATM services, and she said that the banks’ 900 million ATM transactions were 900 million customer experiences, and that the bank’s role was to make each experience the best it could be. Audience member Kristoffer Lawson, the co-founder of Finland-based Holvi, wondered how anything involving ATMs and cash could be considered innovative. Moore pointed out that Wells Fargo is seeing cash use rise in the US for the second straight year, so that cash is very central to the customer experience and her role is to make that fast, secure, and convenient.

In terms of innovation, she pointed out that Wells Fargo displays a Happy Birthday message on the ATM screen during a user’s birth month. This met with some derision on Twitter (attendees tweeted using the hashtag BI13) but we would say in her defense that ANY positive emotional connection you can make with a customer is a win.

Nevertheless, one of the top trending tweets during Day 1 was the following, from MoneyDesktop’s Matt West:

I don’t bank where I bank because they ‘wish me a happy birthday'. It is because they make my life easier and managing my money easier #BI13

— Matt West ️ (@MattFreakinWest) March 18, 2013

Moore argued that banks should meet customer needs — by optimizing how to provide cash efficiently, for example — and make personal connections however possible, even in small ways. Zimmer also said that the experience should be built around the customer.

Leimer and Stephens didn’t disagree in principle, but rather in degree. Both seemed to be looking toward a future where the banking edifice was rebuilt from the ground up around the customer experience, which is certainly the “startup” view. But the reality is we all live with legacy infrastructure in one way or another, and that is an issue that can’t be wished away but must be faced.

Bank Innovation thanks the four panelists for their ideas and are sure they will all help on the difficult road ahead in building the bank of tomorrow.