During World War II, Lockheed Martin created a program called Skunk Works, which used specialized teams of developers for lightning-fast brainstorming to accelerate the research and development of new planes.

That is how a lot of payments innovation is getting done today. Through hackathons, developer events and peer-review programs, payment companies empower teams of people from within and outside their own ranks. The stakes aren't as dire as war, but the idea is the same—the need to leverage new technology is greater than any one company can handle.

"It's important that we realize that in order to be leaders in the digital space we need to work with developers," said Jorge Ruiz, head of business development and digital banking for Citi Latin America. "We cannot pretend that we can be leaders if we want to do everything ourselves."

Citigroup recently launched the Citi Mobile Challenge, an external innovation program that will give a group of developers the tools they need to build applications for payments and other financial services. The bank is seeking ideas that can operate through mobile devices, wearable computing or other Internet-connected hardware.

Citi works with technology companies such as Intuit, Plug and Play and Wearable World to reach out to developers, who must submit their ideas to Citi by Oct. 3. Selected participants will present their concepts to investors and executives from inside and outside Citi at November events in Miami, New York and Silicon Valley, and the finalists may take their technology into production with Citi's support. Citi will provide the application programming interface (API) that powers Citi Mobile and Citi Wallet, though developers can also use APIs from other sources.

The Mobile Challenge follows a similar event in Latin America that recently resulted in new products for the institution, including Citi Shopping, a personalized e-commerce app that connects users to U.S. retailers. Shoppers can pay in their local currency and have goods shipped to their home country.

By going outside the traditional bank structure, Citi is able to get closer to the real use cases of new technology for financial services, Ruiz said.

"We want to be part of the consumer's everyday experience, and we don't think that just having a design and development-specific channel is enough," Ruiz said. "We're one of the largest banks in the world and one of the largest players in the payments space, and we need to be in line with what people are doing."

Citi is hardly the only financial services company reaching out to developers.

American Express' Financial Innovation Lab is partnering with Ideas42, a New York-based design and research lab, to enable researchers and practitioners from non-profit organizations to test their ideas on the American Express Serve prepaid platform.

Amex is not anticipating any specific topics for the program, though the company has been communicating the idea that payments can be a tool to empower underserved consumers to gradually build a credit profile that can lead to deeper financial relationships.

"We think there are things that we can add to our platform that can educate consumers through financial literacy and financial inclusion," said Neal Sample, executive vice president, enterprise growth CIO and chief of marketing technologies for American Express.

Customers will test product ideas, and their findings will inform future efforts. Developers will also have access to researchers, academics and business developers for peer reviews. The program will operate through the fall.

"Often people in academia may not have access to the same capabilities as part of an incubator," Sample said, adding the Amex program gives full academic freedom to its participants—their findings, reviews or other scholarship can be used outside Amex—a move designed to recruit though leaders, Sample said. "They may be hesitant to give up their intellectual property."

Amex is also not placing any license restrictions on the developers. New products can be adopted by Amex or can be taken elsewhere. "We're allowing them the fruits of their labor," Sample said.

Other companies are also making substantial moves to reach developers. PayPal is courting techies, through its acquisition of Braintree and its series of hackathons around the world.

MasterCard is also operating developer events, as are Barclays and FreedomPay. Other companies such as Dwolla have a business model that encourages outside development.

The appetite for "instant, sure-fire winners" is driving the model toward external development, said Gareth Lodge, a senior analyst at Celent.

"The reality is it's more like the VC world," he said. "You have to make lots of investments, look at the returns over a long period of time and realize that one in ten will be successful and pay for the others."

To accommodate this need, companies' approaches ebb and flow over time, Lodge said, comparing the hackathon mentality to the aforementioned "skunk works" strategies of decades past.

"I think the one thing that has changed is there is a growing realization that collaborating with, or exposing APIs to, third parties may accelerate their chances of innovation success," Lodge said. 

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