The next big thing in financial services may not come from a financial institution. The possibility rattles some bankers, but others are embracing it. Rather than hunker down in endless brainstorming sessions, they've been hunting for ideas far outside bank cubicles.

The growing emphasis on research and development, and on the outreach beyond the banking sector, is something of a new paradigm for banks. Rolling out products and channels had been an internal process traditionally, with perhaps a vendor being part of it. The process tended to be long and involved.

Today, however, banks confront rapidly evolving mobile technology and a millennial generation that does not reflexively equate money with tellers and ATMs.

"We're in a space where, if we don't continue to evolve, we're not going to be relevant," says Karl Johnson, chief innovation officer at Pioneer Bank in Troy, New York.

To keep up, bankers are borrowing from the lexicon of Silicon Valley, sponsoring hackathons, creating innovation labs, conducting quick beta tests of products early in the development stage and partnering with tech-oriented startups. The ways to do so are myriad, with banks tailoring approaches based on their size and circumstances.

BBVA Compass has been working with several fintech companies, including one called Kasisto, which is developing voice-recognition technology. "We just can't do it ourselves," says Dave Kucera, director of business innovation. "We really have to partner with the outside community in an open way to be able to develop."

Though some might think such an approach is only for large banks, Johnson argues otherwise. Pioneer is testing an online bill-management tool developed by a local entrepreneur. If all goes smoothly, small-business customers will be able to use the tool for securing discounts on supplies and services. "We're trying it ourselves, and it's working out quite well," Johnson says. He expects to roll it out to bank customers in February.

Some banks are turning to universities. Savings Bank of Danbury has been collaborating with Fiserv and business students at the University of Connecticut. Last spring, the students came up with ideas for apps geared to millennials. One was selected for further development and testing. The ultimate goal is to add it to Fiserv's app store.

"We are getting in before a product's developed," says Kathleen Romagnano, president and CEO of the Savings Bank.

Union First Market Bank also is hoping for an early look at new ideas. Under a broader partnership with Virginia Polytechnic Institute that includes signage at football games, the bank plans on sponsoring semiannual business-plan competitions. Some are likely to focus on finance and banking, says Bill Cimino, a bank spokesman.

"We think this is a way to test and learn, but also get ideas from the outside, which we potentially think can be disruptive ideas," Cimino says. Innovation in serving rural customers is of particular interest.

Banks are trying to spark new ideas internally too. At U.S. Bancorp, an innovation team has been plugging away since 2007 and is now developing and testing products on its own, says Dominic Venturo, the chief innovation officer there.

First National Bank of Omaha sponsors annual hackathons for local techies — and hired two software developers who took part in the inaugural event in 2013. And in December, the bank invited its IT staffers to a two-and-a-half-day event and charged them with working on concepts for new and improved products, says Angela Garrett, its vice president of innovation. "We'd love to do a companywide event in 2015," Garrett says. "The ultimate value is when you have technology people working side by side with business people working side by side with marketing people."

Wherever ideas come from, most banks still face challenges in putting something new in front of customers. Among the steepest hurdles is the industry's aversion to risk, says JP Nicols, founder of the Bank Innovators Council. New products may not always work as expected the first time.

Larger banks have embraced experimentation, but smaller ones need to join in. The wait-and-see approach is hard to justify when technology is moving fast enough to wipe out laggards. Let Blockbuster be an example of how customers are voting with their feet. "The fact is, people are gravitating toward companies that give them more choices," Nicols says. "And that comes from innovation."

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