Using the debit card system is not innovative and it's not "cash" either. But don't mind me, I just hate the credit card industry and wish it would roll over and die already.
The fact that the US insists on operating on such a terrible system where it takes five business days reflects really badly on the infrastructure in place.
So on the one hand, I really like Square Cash as a concept. On the other, I wish banks would actually stop sitting on their hands and make a transfer system that works. Of course, there's no incentive for banks to do that, because they can keep charging money for 'instant' wire transfers right now.
But I agree having instantaneous transfers instituted at the bank level would be real progress. Unfortunately congress can't even agree on the incremental changes it makes to the existing system, so I have little hope for sweeping reform.
If you're required to do, say, next-business-day payments but your infrastructure gets them done in 5 minutes, you could still want to delay all those payments to the next day since there it makes a significant addition to your revenue (float of the money held, interest on overdue customers, payment fees for 'more-urgent' payments) - unless competition forces you to do so.
Banks aren't sitting on their hands - you should expect a "transfer system that works" from banks as soon as someone actually threatens to outcompete them. Square Cash doesn't seem to be that thing - it relies on banks allowing the debit-card-refunds (AFAIK they are allowed to kill this ability as soon as they wish to), and I'm sure the banks make sure they earn 'their due' in fees on every such payment anyway.
Replacing ACH is a much better solution. Like what Dwolla has done.