The entrance to Capital One Labs in Arlington. Area banks are spending more than ever on new technology, smarter branches and start-up-like offices as customer needs change. (Jeffrey MacMillan/Capital Business)

There is a policy at Capital One Labs in Clarendon that if a team needs more than two pizzas for dinner, the group is probably too big.

Staying small has been a top priority for the two-and-a-half-year-old technology incubator, a spinoff of the McLean based financial giant. Unlike its much larger parent company, Capital One Financial, the Labs operates much like a start-up — albeit a well-funded one — in an Arlington office dotted with beanbag chairs, throw pillows and an arcade machine built by employees.

Keeping teams small allows Capital One Labs to be nimble and move quickly. The company’s recent mobile wallet was born out of Capital One Labs, as was its recent partnership with Apple Pay. About 50 employees work on a dozen projects at any given time.

Across the region, banks and credit unions are reinventing themselves as quasi-technology companies, coming up with new branch prototypes, payment systems and security protocols. With cybersecurity breaches becoming a major concern that costs the industry hundreds of millions of dollars, local executives say the need to keep up with the latest technology has become not only important, but vital.

PNC this year opened new “universal branches” in Rosslyn and Tenleytown, where teller lines have been replaced by tablet-toting employees. Wells Fargo, which is experimenting with applications for Google Glass, has taken similar measures, picking the District for its first high-tech locations. Even smaller community banks are taking note: At Eagle Bank in Bethesda, the technology team has quadrupled since the bank’s opening in 1998.

A Capital One Labs employee solders a program header for an embedded electronic device. (Jeffrey MacMillan/Capital Business)

“The whole philosophy around technology has changed dramatically in the last 10 years,” said Susan G. Riel, chief operating officer for Eagle Bank. “At one time, banks controlled what technology people used, whether it was ATMs or credit cards. In today’s world, the customers are the ones telling us what they want.”

Increasingly, what customers want is easy access from their phones.

At Capital One Labs, tucked away on the eighth floor of an office building above a Trader Joe’s, employees clad in jeans and sneakers have spent the better part of 2014 developing the company’s mobile wallet, which offers real-time purchase information and rewards balances, and integrating the bank’s credit and debit cards with Apple Pay, a payment system that allows customers to pay for purchases using their iPhones and Apple Watches.

Capital One created the Labs spinoff in early 2011 and opened its Arlington location a year later. (There are also offices in San Francisco and in New York.) The idea, executives said, is to create an in-house incubator for new technology that can be fed directly to the parent company.

“At Capital One, we’re embedding technology, data and software development deeply into our business model and how we work,” Richard D. Fairbank, founder, chairman and chief executive of the company said in a call with investors two weeks ago. “Banking inherently is a digital product, and digital will transform banking over time.”

In 2012, Capital One paid $9 billion for online bank ING Direct as part of its efforts to beef up its Internet presence. The company continues to add engineers, product developers, designers and data scientists, and earlier this month, it acquired Adaptive Path, a San Francisco design consulting firm.

“The momentum around digital is building across financial services,” Fairbank said. “Ultimately, the winners in banking will have the capability of a world-class software company.”

Emphasis on mobile banking

Need a credit card? Well, Navy Federal Credit Union has an app for that.

Two and a half years ago, the Vienna-based credit union scrapped its third-party mobile apps and decided to start anew. It moved its mobile technology team in-house and began designing what its customers seemed to be looking for: Apps that would allow them to apply for credit and debit cards, redeem cash rewards and see real-time updates using their phones and tablets.

It seems to be working: More than 30 percent of the credit union’s members now use its mobile apps on a monthly basis, with the average person logging into their account 19 times each month.

“Mobile has become the easiest way to interact with us,” said Randy Hopper, vice president of credit cards for Navy Federal Credit Union. “The results have been pretty astronomical.”

At Bank of Georgetown, which began offering mobile banking earlier this year, much of the company’s technology operations are handled by third-party contractors, a necessity for a bank of its size with about $1 billion in assets, executives said.

“It’s the only way we can compete with the big guys,” said Domingo Rodriguez, chief financial officer and executive vice president for the District-based bank. “Emphasis number one is on data security. It’s our house and we want to protect it the best we can.”

About 5 percent of the company’s gross revenue goes toward technology, he said, adding that cybersecurity has become one of the bank’s most pressing concerns in recent years given the number of high-profile data breaches, most recently at JPMorgan Chase.

Last year’s data breach at Target cost American banks and credit unions more than $200 million, according to the Consumer Bankers Association and the Credit Union National Association.

“In today’s world, everyone is getting attacked,” said Riel of Eagle Bank, adding that while Eagle has not had a data breach, it has been attacked.

Eagle Bank is in the process of allowing business customers to approve wire transfers using mobile devices. The technology is easily accessible, Riel said, but the challenge is making sure that the transactions are secure.

“It’s a scary time, but technology continues to advance,” she said. “The security is improving also — it’s just a matter of keeping up with that.”

Reimagining bank branches

There are two types of customers, said Wayne Fortune, manager of PNC Bank’s Tenleytown branch: Those who balance their checkbooks, and those who don’t. The first group tends to visit the bank regularly to deposit checks or withdraw cash. The latter relies on apps, real-time alerts and mobile statements to keep track of their finances.

“They are polar opposites, and we have to be able to accommodate both,” Fortune said.

To that end, the branch — which dates back to 1958 when it was part of Riggs Bank — reopened in late September after more than a year of renovations. The space was gutted. Teller lines, glass barriers and offices were replaced with stations outfitted with iPads and computers where customers can check balances and deposit checks.

The branch has six employees, all of whom are trained to help customers with everything from deposits to loan applications. They walk around and offer help. A corner office is reserved for meeting with business banking and wealth management clients.

“The banking industry sees value in moving toward a more universal style,” Fortune said. “We don’t have tellers and bankers. Everybody is cross-trained to do everything.”

A souped-up ATM at the front of the store is also equipped for multitasking. In addition to traditional withdrawals, customers can deposit up to 50 bills of currency and 30 paper checks at a time.

That machine alone has helped cut back on costs, Fortune said. Employees used to have to unlock ATMs every evening to empty envelopes, count bills and match checks. Now much of that is done digitally and in real-time. Workers tend to the machine once a week instead of every night.

“As customers visit branches less to conduct a transaction and more to get advice, that requires us to rethink the layout, the format and how we manage our branches,” said Thomas S. Kunz, director of digital for PNC.

Cutting costs

That shift also means banks have been steadily shuttering physical locations in recent years to cut costs. As of June 30, there were 1,717 bank branches in the Washington area, 3.5 percent less than there were four years ago, according to data from the Federal Deposit Insurance Corp.

Wells Fargo, however, has added 11 branches since 2010 as the San Francisco-based bank has shifted its focus toward smaller, high-tech branches in urban neighborhoods such as NoMa and the U Street Corridor.

The company’s newest locations use touch-screens instead of deposit slips. Going digital has helped cut costs and made operations more efficient — there are fewer documents to sort and shred at the end of the day — and has also helped cut down on back-office storage space.

“If you look at the banking industry broadly, there’s still a lot of paper that drives that business,” said Jonathan G. Velline, executive vice president for ATM banking and store strategy at Wells Fargo. “For us, we know that is inefficient and we also know that our customers don’t want to fill out all of that paperwork. They expect the immediate gratification they’ve come to expect from Amazon or Google or Samsung.”

The company’s new stores devote about 10 percent of their overall footprint to storing documents, compared to 40 percent for a traditional branch, Velline said.

For community banks, the shift toward smaller — and fewer — branches has an added benefit: Being able to reach a broader swath of customers without spending large amounts of money on new real estate.

At Eagle Bank, for example, an increasing number of the bank’s customers live outside of Washington. The ability to check account balances and bank activity with the tap of a button has been transformative, Riel said.

“We always say we listen to our customers, but with technology, we really have to,” she said. “They’re the ones driving change, not us.