BOCA RATON, Fla. — The need for innovation has emerged as the unofficial theme of the American Bankers Association's National Conference for Community Bankers.

The annual conference is officially dedicated to "banking in a brave new world." But many of the 1,300 attendees — including keynote speaker Luke Williams and participants at a well-attended panel discussion — were quick to assert how critical innovation will be to the survival of smaller institutions.

Unfortunately, many smaller institutions have been reluctant to explore new ways of doing business. "Most community banks don't even know what's out there," said Troy Morrison, chief marking officer at the Bank Innovators Council and the innovation panel's moderator.

In contrast, many of the nation's biggest banks were the first institutions to support the council, launched in September 2013 by former executives from U.S. Bancorp and BBVA Compass.

"The top-25 loved us and couldn't get enough," Morrison said.

One issue for community banks could be the perceived enormity of taking on a progressive project. Panelists discussed the potential of trying smaller pilots before embarking on a larger strategic push.

Eastern Bank tried just such a test in October, when it preapproved about 800 small-business customers for loans of $10,000 to $100,000, including prospects with credit scores as low as 500. Recipients were chosen from a pool of commercial clients who had deposit relationships but no loans from the $9.5 billion-asset bank.

"We did the craziest thing we could think of, giving loans to people with bad credit to see what would happen," Holbrook said. Eastern made about 50 loans, representing a higher success rate compared to the bank's direct mail offers. Though too soon to declare victory, Holbrook said the pilot gives hope that Eastern may have found a new way to court commercial depositors.

The Boston bank has developed a reputation as an innovator. Last year, it hired a group of executives from tech startup PerkStreet Financial to run Eastern Labs, a new division focused solely on innovating. Eastern budgets about $4 million annually to the effort.

"The most important thing a CEO can do is to get people out of their comfort zones to try new things," Holbrook said.

"We used to pride ourselves on being what we called a fast-follower," he added. "We can't afford to follow anymore. The time is now to start something."

Such sentiment was shared by David Kucera, another panelist who serves as director of business innovation at the $83 billion-asset BBVA Compass in Houston. "You have to be prepared to fail, but hopefully the failures will be quick and small," he said.

David Peterson, who drew a standing-room only crowd to his session on evolving customer service expectations, highlighted a recent study by the Johnson Center for Philanthropy that forecast a $40 trillion wealth transfer over the next 30 years. Much of that wealth will go to individuals who are currently in their teens.

"These are goofballs," Peterson, chief strategic officer at i7strategies, told attendees. "They're 16-year-old kids who represent nothing to you. But a few years from now, when they're bankable, will they want to bank with you?"

In his prepared remarks, Williams, professor of innovation at New York University's Stern School of Business, urged community bankers to embrace "disruptive ideas." He acknowledged that doing so is difficult because it requires "deliberately making yourself wrong at the start of a project to arrive at a solution."

Still, Williams encouraged bankers to systemically inject innovation into strategic and product planning, arguing that the potential benefits justify any issues that may arise. He noted that a number of game-changing companies, including Red Bull and Zip Car, resulted from disruptive business plans.

"The more unexpected the idea, the fewer the competitors," Williams said.

John Reosti is a reporter at American Banker.

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