Have Travel Money Cards had their “day in the sun”?
This was the question posed to PIF members at the November member meeting by prepaid travel money industry veteran Patrick Roe, co-founder of consultancy firm FX3 Consultants.
We asked Patrick to give us his view on the state of the travel money card sector today.
PIF: For the uninitiated among us, can you give us a brief history of travel money cards?
Patrick: Visa first came up with the idea of travel money cards in the 1990s as a replacement for their Travellers Cheques, but they never really took off. American Express followed in 2005 with their Travellers Cheque Card, which was withdrawn from the market after two years.
PIF: Why do you think these early propositions were short-lived?
Patrick: I think because back then, neither consumers nor the market were really ready for them. American Express also had their own particular drawbacks, such as low merchant acceptance and higher fees compared to other card schemes. Intrusive regulation also took its toll, such as the German BaFin regulations requiring KYC to be re-performed on every third re-load.
PIF: Were there any success stories in these early days of travel money cards?
Patrick: Travelex launched their Cash Passport cards and were relatively successful, including UK white label deals with several supermarkets and travel retailers such as Thomas Cook. It was also a big success in some other territories, particularly Australasia and was eventually sold to Mastercard for £290 million. Yet at the same time, many other players have tried and failed in the travel money card space. There are some notable exceptions, such as the UK Post Office, with their “captive audience” as an FX market leader, and the likes of TUI Travel’s own-brand cards.
PIF: You say that many players have tried and failed. Why do you think this is?
Patrick: There are several reasons for their relative lack of success.
From a supplier perspective, it’s mainly due to the lack of sufficient volumes of either cards issued or funds loaded. This effectively means that economies of scale are impossible to achieve and costs, such as BIN charges, programme manager setup costs, plastic cards and packaging costs, eat into revenues. Sourcing the FX is also a big issue, unless sellers have their own FX accounts, like some of the international travel companies but they’re the exception rather than the rule.
These financial models are difficult to work with and profit from because there are multiple entities that need to benefit; the retailer, programme manager, processor, BIN sponsor, card scheme and the FX provider. There are a lot of mouths to feed!
Cash demand also remains strong, with travel money cards only ever being a tiny proportion of banknote sales and retailers not wanting to compromise their FX margins/sales in the light of the costs.
Also, from a teller’s perspective, the sales process is more complex. There is little incentive for staff to upsell, or capture customer details for the purpose of KYC.
PIF: How has customer behaviour impacted the uptake of travel money cards?
Patrick: Debit and credit cards are still widely used by consumers travelling abroad, despite the additional costs some providers charge. This could well be because knowledge and awareness of travel money cards is low, especially with the new breed of multi-currency cards and the benefits of these cards not being made sufficiently clear to consumers. A major issue from a consumer perspective is that there has been a considerable amount of negative press around charges and fees, as well as restrictions on usage at hotels and for car-hire deposits. There is also the perceived difficulty in obtaining and activating prepaid travel money cards as opposed to cash purchases that do not require ID verification.
PIF: How has the industry responded?
Patrick: With so many failed programmes, we are seeing consolidation in the industry with a number of recent programme manager mergers and takeovers. I think there is more consolidation to come. Some programme managers are concentrating on other areas, such as gifting and alternative banking propositions.
PIF: What is the current outlook for travel money card providers?
Patrick: They are facing all of the problems that I’ve already mentioned with the additional “perfect storm” of fintechs and challenger banks such as Revolut, Monzo, WeSwap – and potentially tech giants such as Samsung, Apple and Amazon offering mobile-based payments – all elbowing in.
PIF: Do you think fintechs and other challengers will succeed in the travel money space?
Patrick: It depends because a number of questions remain, such as how real is the much -publicised take-up of challenger accounts and are their account holders actually ‘active’ and using their cards. I also wonder how much of the uptake is down to the FX components of the products. Whether they will all last, or whether we will see more consolidation remains to be seen.
Patrick Roe is Co-founder and Consultant at FX3 Consultants.