… are greatly exaggerated. This is very significant for financial inclusion. Many people are rightly considering how much easier financial inclusion would be, especially in rural areas, if we had a society that was fully digital in its financial activities. But even in a country like Kenya, that is a very, very long way off, so we must focus on an interim state in which we have a mix of digital money and cash.

I’m reminded of the challenges for getting rid of cheques. The French still write close to 3 billion a year, and cheques are still widely used in countries as diverse as Canada, Britain, Russia and India. And then at nearly 20 billion cheques per year, the US dwarfs the rest of the world’s usage. Some of the reasons for continued use of such an outdated payment method are helpful in understanding why it will take so long to get rid of cash.

1. Cheques are cheap and easy and changing consumer and small business payment habits is neither cheap nor easy. Of course (unlike cash) the cheque infrastructure is not cheap, but so long as there is a decent volume of cheques, the cost to the user is relatively small. That will change as fewer cheques have to absorb the fixed costs of cheque sorters, image equipment, etc.
2. Even if cheques make no sense (e.g. where debit cards are widely available), their removal represents a cultural change. The UK Payments Council famously announced in 2009 that cheques would be eliminated by law in 2018. After a huge furor, they had to rescind the announcement and instead eventually (last year) decided to invest in a desperately delayed cheque image infrastructure, which won’t be fully in place until at least 2016.
3. In some countries, cheques are a safe way of making payments, perhaps perceived as safer than card payments. In France and India, for example, it is a criminal offense to write a bad cheque (though perhaps unevenly enforced in India).
4. While in principle there are better electronic payment mechanisms available to everyone, in practice they are not as easily accessible to consumers and small businesses as might be assumed. This is especially true in the US, where because of the vast number of financial institutions, bill payment will often pass through aggregators, and there is no way for a user to know if a payee will receive a payment through ACH or a cheque printed and mailed by the bill payment service!
5. The only way to completely eliminate cheques is through legislative change. Poland eliminated cheques in 2006, and the Netherlands in about 2012, but few other legislatures have seen this as a high-enough priority (especially given the UK’s experience).

Moving to a truly cashless society will encounter all of these challenges, and several more. For many people, holding cash is the only truly “reliable” money. This is of course ironic, since the vast majority of cash is simply a promissory note from a central bank, rather than from a company or individual as in the case of cheques. Eliminating cash completely will take decades in many countries and cultures.

Digital banking holds a great deal of promise for financial inclusion, but it needs to be planned on the assumption that it works in conjunction with cash. For example, in most mobile banking product sets, arguably the most critical functions are cash-in and cash-out functions, which require interaction with a branch, ATM, PoS terminal or agent. For communities that are distant from bank branches or cash-handling machines, an agent network will continue to be critical for many years to come.

Design of digital banking products must therefore seek to minimize the cost, frequency and complexity of agent interactions, if the goal is to provide ease of access and use along with relevance of products to the customer’s daily life. It would be good to see more focus on agent mobile platforms that will simplify and speed up customer acquisition, cash-in and cash-out functions, payment initiation where relevant (e.g. Pakistan), and loan and insurance origination.

There are many emerging mobile finance platforms which are rightly focused on the end-user – the customer (although many are being designed without clearly taking into account how poor households actually manage money).

Who is focusing specifically on the agents, the essential enablers of mobile banking in a cash-centric rural environment? In my blog on lending components of a financial platform for the poor, I suggested some characteristics of an agent platform. Are there companies building agent-specific capabilities that will accelerate adoption of mobile financial services by increasing agent capability, effectiveness and satisfaction?