Innovation labs are all the rage in the banking industry right now, but a debate has broken out about whether they will amount to more than window dressing.

The labs make splashy headlines and captivate employees' imaginations by having the latest gadgets like Apple Watch and virtual reality sets on hand. Some have acquired odd nicknames like "Bold Rocket." Sometimes they look like ordinary conference rooms; in other cases they resemble a slick startup's digs.

Big banks view their labs as physical manifestations of their company cultures — ones that embrace what-if scenarios for an industry under siege by a growing number of entrepreneurs at a time when ever-more technologies are coming into consumers' hands. Proponents of the lab concept say they are necessary mediums to encourage fresh thinking, improve the customer experience, and showcase concepts. Skeptics, on the other hand, say the labs have the potential to become boondoggles — and perhaps send the wrong message to rank-and-file employees.

"Why would you need to create a lab in order to have innovation? To me, innovation is something that should be a part of the underlying culture of the company," said Stephen Bohanon, founder and chief strategy and sales officer of Alkami Technology. "I've seen a couple companies say, 'we're going to open up an office in Silicon Valley and that's going to be where we do our innovation.' It's kind of unfair to everyone else in the company, because now, what are they? Non-innovative?"

TECH PLAN

Sam Kilmer, a senior director at Cornerstone Advisors, sees the innovation initiatives — which often take different forms depending on the institution's size — as measures to make sure time is allocated to ideas that have nothing to do with putting out fires.

"It's not just page three, paragraph two of a tech plan," said Kilmer.

Miranda Hill, who manages Wells Fargo's digital labs, said labs are a critical component to the bank's ongoing search for ways to help customers manage their finances across a growing number of digital technologies.

"There are a lot of different opportunities to explore," said Hill.

And they're but one part of a larger plan to change the way older institutions operate to better suit a digital era and fight the inherent limitations of large organizations drowning in regulations.

Citigroup, which has been private about what it's working on in its labs, views them as an important part of its overall innovation sourcing strategy.

"Tomorrow's growth will come from new and unexpected sources," said Debby Hopkins, chief innovation officer at Citi, in a statement.

"Over the past several years, we have built an innovation ecosystem that enables us to identify and pursue growth opportunities in an integrated way, from the earliest outreach into the external startup community to the commercialization of new capabilities that deliver value to our customers. Citi's Innovation Labs, and our global network that connects them, play a critical role in our ecosystem by providing a focused, rapid experimentation environment that explores, validates and brings to market the most promising new ideas for Citi's businesses around the world."

For Wells, the investment in labs has specifically helped the San Francisco bank improve the way it illustrates innovation: Rather than show PowerPoint slides of concepts like bankers did in yesteryears, labs resources can be used to whip up prototypes. That's good for not only pitching the bank's business execs but also demoing the dreams to branch personnel who can give the experimenters a "reality check" with ones that relate to the physical channel, said Hill.

"It becomes much more tangible."

Ron Shevlin, a director of research for Cornerstone, said such initiatives are a reaction to a business problem: a perceived lack of innovation. And what they need is something they may already have though not always visible to outsiders: defined goals.

"I'm not saying there has to be an ROI," said Shevlin. "There should be a clear business objective to come out of this."

THE NAYSAYERS

Some institutions have taken a stronger position: that labs are something to avoid.

In an interview with Fortune in June, Cathy Bessant, a global technology and operations executive at, Bank of America said:

"We are different from some firms in that we are not big believers, and I'm not a believer personally, in innovation labs—the whole idea of innovation for innovation's sake and the idea of one success for every 10 tries. Banking is a thinly margined business. …The whole idea that we would devote a tremendous amount of money to something with a 10% hit rate is not, in my view, economically viable."

And there's an almost universally accepted truth: large enterprises will hardly ever produce the next best thing; the newcomer will.

"It's the nature of the beast," said Arkadi Kuhlmann, founder and chief executive of the startupZenBanx.

There's a place for piloting projects that have potential to become implemented, but Kuhlmann said he believes innovation cannot be designated.

"You can't put innovation in a title," said Kuhlmann. "It's a part of your culture. …It isn't something you can relegate."

Some of the debate may in fact be a battle of words: Some banks refer to their user experience testing as labs; others do not. Some labs come with slick-looking environments; others come with beige walls.

Some innovation projects don't get past proof-of-concept stages. Ideas will be axed; dreamers within the bank could be let down and potentially jump ship to work at a startup. But that is part of the process, especially for a risk-averse business on a journey to find the potential hit.

"You have to do a lot of innovation to get one thing that works," said Stessa Cohen, a research director with Gartner.

Wells Fargo, for one, prefers to think about ideas failing to launch as insights gained that could benefit the bank at a later time. "You will learn something along the way," said Hill.

The lesson could mean pivoting a proof of concept to better address a customer service issue or it could mean just waiting for the right time to launch something. Wells, for example, had been studying smart watches and internet of things devices for many months and decided the time was finally right to put forth an app of its own for Apple Watch in July.

And possibilities need to be plentiful to find the aha.

"We need a portfolio of ideas at any one time," said Gavin Michael, head of digital for consumer banking at JPMorgan Chase.

Chase, which maintains one permanent office and two project-specific areas dedicated to trying out new features and experiences, said its latest mobile app redesign reflects elements of four ideas tested within its labs, for example.

"Modifying and testing again is really important," said Michael, who views labs as an evolution of traditional R&D, with an increasing emphasis on innovating and improving the business via technology versus pure technology research.

Similarly, Wells said it is imperative to get feedback on labs pilots and invites customers to test concepts at labs.wellsfargo.com, among other things.

"[We're] being more open and transparent about some of the concepts and ideas we are working on. It is a really powerful way of gathering more feedback," said Hill.

Marc Hochstein contributed to this article.

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