Is Cash the Enemy of Financial Inclusion?

As part of the event program, The Better Than Cash Alliance moderated an Oxford-style mock debate entitled “Is Cash the Enemy of Financial Inclusion?” which was a thought-provoking approach to discussing the pros and cons of cash in financial inclusion.

Most members of the CGAP financial inclusion community understand in-principle the power of digital finance to reduce costs for reaching the financially excluded. We wanted this debate to spark new ways of thinking and understand the barriers that still stand in our way. To do this, we divided our panelists into the “affirmative” and “negative” teams, and gave them each a role to act out in the discussion.

After a lively debate summarized below, the three main conclusions of the discussion were:

• Digital financial inclusion is happening right before our eyes – this is not a theoretical discussion! We should not think of the shift from cash to electronic financial services as a medium or long term issue. Adoption of digital technology in all forms from pre-paid cards to mobiles is booming. Our challenge is to quickly get on board and find ways to make digital financial services better serve low income customers. Every part of the ecosystem has a role to play to make an inclusive and responsible shift happen.
• Women can greatly benefit from non-cash services. Digital financial services answer the main concerns of women: control, convenience and confidentiality. Women need to run their business, provide care, make household and business payments and keep themselves and their money safe, all at the same time. Digital finance is definitely their best friend in helping manage all this!
• There are real challenges that can be overcome through partnerships. Many challenges need solutions (see table below) but they are solvable:
  • On the supply side, digital finance is a high volume, low margin business. Developing the regulation, deploying the payments infrastructure and designing client-centered services that benefit low income customers will require dynamic partnerships between all the players of the inclusive digital finance ecosystem – governments, private sector and development partners.
  • However, on the demand side too, enabling clients to accrue the benefits of electronic payments versus cash is critical as technological and financial capability accelerates adoption. Designing services that answer customers’ needs and are backed with appropriate recourse mechanisms can be facilitated by partnerships to achieve common goals.

Here is a recap of the arguments of the lively debate:

NEGATIVE	AFFIRMATIVE
Position: “Cash is not all bad for the financially excluded”	Position: “Digital financial services can extend financial inclusion”
- Cash works for people who are unbanked – they have developed mechanisms that allow them to operate in the cash economy, so why “fix” a system that is not broken?	- Digital payment services can bring huge cost savings and increase efficiency for payers. They are also often cheaper or the only access option for payees, especially in remote areas and for rural communities
- People like cash because it is tangible (unlike a digital wallet) and is accepted anywhere, which is important for functioning in local market economies.	- Digital financial services allow people to manage their money, better control how they use their funds, save for unpredictable needs such as health and emergencies and invest in business opportunities and in their household
- Cash can be cheaper because the ecosystem around it is mature versus growing digital systems where players in the value chain are still looking for ways to get paid.	- Although cash is tangible and can be held in your hand, cash can be stolen or kickbacks required without trace, which increases risks for people who use cash.
- Digital systems take a long time to set up in uncertain environments and the current digital infrastructure does not solve the range of product and service needs – it’s better to reduce complexity, especially in uncertainty.	- Digital financial services provide clients, and women in particular, greater privacy.
- Cash can be easily understood it does not require memorizing passwords, help from an agent or waiting for ages to talk to a “help desk” when there is a problem.	- Digital services create a financial history over time, and give people pathways to greater inclusion
- Cash is often integrated culturally and changing cultural practices takes a lot of time… although in some cases it digitizes cultural practices so works really well.	- The informal economy often deals in cash as a way to avoid taxes, digital finance ensures that payments are handled in a more transparent way and supports inclusion in the formal economy.

CGAP partners rated the debate the highest of all the events at the annual meeting. For us, it is the sign that most players of the financial inclusion ecosystem are eager to learn how they could become more effective using digital finance to better serve their clients.