It’s not crazy to believe that the banking sector is about to witness a wave of disruptive innovation on an unprecedented scale: next generation banking fit for the next generation. KPMG reported that our banking sector would be completely reinvented over the next decade, while digital challengers from Atom and Monzo to Clearbank and Starling seem poised to offer a more personalised, intelligent way to manage our money.

Why aren’t we more excited? Well, so far there’s little evidence of these challenger banks disrupting the steady world of banking. Get past Atom’s nifty facial recognition and you’ll find a bog standard set of fixed term savings accounts and digital mortgages. Monzo’s ‘banking like never before’ really means a bog standard current account with a nice smartphone interface. And MetroBank’s water bowls and biscuits for dogs mask a range of products indistinguishable from any other high street bank.

There’s plenty of innovation going on, but it’s in the wrong place. There’s one key difference between genuine innovation and gimmickry: insight into the user. And it’s difficult to see much evidence of insight in the way challenger banks are currently innovating.

Our attitudes and behaviours towards money are intimately related to our sense of identity and remain stubbornly resistant to change. That’s not to say people can’t change; only that we change at a pace that suits us. We’re learning to love contactless and mobile forms of payment, but we’re a long way from digital banking nirvana. The problem is that people are terrible calculators of risk and don’t deal well with uncertainty. Many of us struggle to plan for next week let alone retirement, and banks – even flashy digital banks – make some of us suspicious.

20 years ago, a 30 year-old might expect to be well on the way to owning a home and a car and starting a family. Today, the financial pressures faced by the millennial generation mean that plans for home ownership, car ownership, marriage and children have to be delayed or abandoned. It’s a sobering thought for any ‘next generation’ bank, and the need for genuine innovation in banking has never been greater – we have a generational time bomb to defuse.

We need a radical re-think of what innovation in banking is about. There’s a lot of exciting areas of opportunity for big innovation including data as currency, open banking and the circular economy. Gimmicks may attract interest in the short-term, but the long-term prosperity of the next generation of bank will depend entirely on its ability to help the next generation of customer. Writers like Mariana Mazzucato are prompting this generation to ask fundamental questions about what value means in society  – banks and other FS companies will increasingly have to demonstrate that they aren’t getting rich by extracting value from those who create it, but genuinely add it themselves. There will be no easy answers.

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