This article was first published in the first-quarter 2014 edition of Personal Finance magazine.
First there were traveller’s cheques … thick wads of them if you were going away for a long time and ordered them in small denominations. It was a pre-travel ritual to fetch your traveller’s cheques from the bank in their plastic wallet and sign each one in view of the cashier, suppressing your excitement. Where would you be when you countersigned each cheque and what experiences would they finance?
Ways of transporting money around the world have moved on rapidly in the past couple of decades, but traveller’s cheques do still exist, issued mainly by American Express (Amex) and Thomas Cook, and available in all the major currencies: United States dollar, British pound, euro, Canadian dollar, Australian dollar and Japanese yen. They still have their virtues: locked-in exchange rates, the widest range of currencies to fit the countries you plan to visit, and an excellent support system with the capacity to replace lost or stolen cheques within 24 hours.
But they are on their way out, says Francis Brand, head of transactional product and forex at Nedbank. “Due to the fact that these are paper-based transactions and attract higher charges, the popularity of the product is dwindling significantly for the traveller.
“They attract commission charges when bought and also when cashed abroad, with the amount charged determined by each encashment agent overseas, so it becomes a pricier option for a client than some of the other travel products on the market. The number of sellers and buyers of traveller’s cheques in the global market has also declined significantly, making it more difficult for the traveller to use them,” Brand says.
So cards have taken over, and the Amex brand is now less important than the payment medium. Although Amex traveller’s cheques might be rejected even in the US, cards bearing the logo are your open sesame to 800 000 ATMs around the world and successful transactions almost everywhere.
Travelling light
The latest development in plastic money is the prepaid, reloadable foreign currency cash card, available from foreign exchange dealers, such as Travelex and Master Currency, and the major banks.
For the purposes of this article, we focus on the prepaid cash cards available from the four major banks: the American Express GlobalTravel Card, available through Nedbank; Standard Bank’s TravelWallet, supported by Mastercard; the Visa Cash Passport offered by First National Bank (FNB), and Absa’s Multi-currency Cash Passport, also a Mastercard.
All, apart from the Absa card, can be loaded with one of three or four main currencies: Amex offers three: US dollars, British pounds and euros. The other two offer four currencies: those three plus Australian dollars. If you want to carry all the currencies, you can take three or four cards without adding much bulk to your pockets.
When Absa launched its Multi-currency Cash Passport last year, it was a first – not only in South Africa, but in the whole of Africa – offering four currencies on a single card, with more currencies promised in future. According to Arrie Rautenbach, Absa’s head of retail banking, a similar card has since been launched in Kenya.
“When the card is used, the system intelligently chooses the correct currency from the card, depending on the country the cardholder is in, as long as the currency is available,” Rautenbach says. “For example, if the country is the US, the system will automatically debit the US dollar purse on the card.
“If an ATM withdrawal or point-of-sale (POS) transaction is made in a currency which is different to any available on the card, or exceeds the relevant available currency balance on the card, the amount will be funded by converting the transaction amount to the next available currency balance on the card.”
Not only can you travel with three or four currencies at once without the bulk of notes or traveller’s cheques, but you have the credibility of Visa, MasterCard or Amex and the peace of mind that comes with a fixed budget and a support network that operates, in all cases, around the clock and seven days a week.
No system is perfect, but this one trumps the credit card by sparing you that moment of reckoning when you get home and confront your balance.
Although credit card purchases are subject to the interbank exchange rate, which is invariably better than you can expect when you change traveller’s cheques or cash to currencies in foreign countries, the wisdom of spending on credit while abroad is questionable at best. The mix of a credit limit that might exceed budget, a fluctuating exchange rate and, possibly, a once-in-a-lifetime visit to a distant shopping paradise is pretty explosive.
Interestingly, travel was one of the early drivers of the “buy now, pay later” system that produced the credit card, and it keeps on stimulating innovation. When there had been only a crude attempt to create a remote payment system, a group of airlines in the US, led by American Airlines, introduced a card to incentivise air travel by offering discounts and making booking and paying easier. Look how far the combination of credit cards and air miles has come since.
Although credit cards are still the safest and most convenient way of paying for big-ticket items (especially those you can buy before you travel), such as airline tickets, accommodation and car hire, they have serious disadvantages. They are expensive for cash withdrawals from ATMs, because the fee for withdrawals varies with the size of the sum withdrawn and interest is charged; they are subject to uncertain currency conversion fees when used to pay for goods or services; they are not accepted everywhere, because vendors pay a percentage of the value of every transaction for the privilege of the service; and if you fail to pay them in full by the due date, the interest could blow your travel budget.
Debit cards have some of the same disadvantages as credit cards: they are not accepted everywhere and expenditure is unpredictable, thanks to variable exchange rates and international POS and currency conversion fees.
Preloaded cash cards allow you to set your budget before departure and lock in the exchange rate for the duration, so that there are no nasty surprises. You can buy your currency up to 60 days before departure, so you can time your purchase and possibly benefit from a better exchange rate than you would have got using a credit card. Since you are travelling with foreign currency, instead of rands, there are no card-imposed currency conversion fees at your destination, unless you have to convert the foreign currency you have loaded on the card to a different local currency.
All the cards can be topped up while you are travelling if necessary (subject to exchange control limits), but you need to request this facility before you depart, so the necessary paperwork is in place.
Although the exchange rate is generally better than you would get if you bought traveller’s cheques, there are several fees attached to all cash cards: an issuing or purchase fee for each card, a loading fee for each currency (a percentage of the value of the currency loaded onto the card), the same fee for reloading currency in most cases, and a fee for each withdrawal from an ATM. However, ATM withdrawal fees are predictable with cash cards, whereas they are proportional to the amounts you withdraw when you use your credit or debit card.
There is no POS fee for using the card to pay for goods or services, provided transactions are in the currency (or currencies) available on the card and the merchant is authorised by Mastercard, Visa or Amex, as the case may be.
If you need to use a card to access a different currency – for example, you have British pounds, but you make an unscheduled trip to France and need euros – you pay a currency conversion fee, which is a percentage of the amount you withdraw from an ATM or spend at the POS. With Absa’s Multi-currency Cash Passport, for example, this is a whopping four percent of your spend. Bear in mind that the foreign bank that operates the ATM may also charge a conversion fee, so it really does pay to carry the currencies you might need, if possible.
The Amex GlobalTravel Card charges three percent for currency conversions, but has waived the fee for 15 months until January 31, 2015. So, until then, prospective users can take one card with one currency and convert to other currencies without card charges. (Note that any conversion charges levied by the foreign bank will still apply.)
The Amex card has also been issued free since it was launched in October 2012, but the normal issuing fee of R114 plus VAT was introduced on January 1 this year, and you’ll pay it per card if you choose to take all three currencies.
Foreign currency back home
Cash cards are reusable for three, four or five years, depending which card you choose, so the initiation fee is good value if you travel frequently.
However, in South Africa, cash cards cannot act as stores of foreign currency, because exchange controls require you to convert foreign currency to rands within 30 days of entering the country. All four banks require you to sign a declaration to the effect that you will comply with this regulation as part of the terms and conditions attached to using the cards.
In other countries, where there are no such controls, there is another good reason for not leaving a foreign currency balance on these cards: most providers take a monthly inactivity fee from the balance if the cards are unused for 12 months.
Because they are international products, Nedbank’s Amex GlobalTravel Card, FNB’s TravelWallet and Absa’s Cash Passport are all subject to this fee if you fail to convert the currency left on it. Only Standard Bank does not levy this charge.
As Chantal Robertson, head of specialist sales at FNB Forex, explains, the responsibility to comply with exchange controls rests with the individual. If a client fails to make the conversion and does not use the card for 12 months, FNB takes a fee of between two and five US dollars, Australian dollars, euros, or British pounds from the balance every subsequent month. Absa’s fee is the rand equivalent of US$2 a month. Amex charges US$2, £1.50, or €2, whichever is applicable.
Limiting risk
Security is an important feature of these cards, in terms of both the risk of identity theft and the recovery of funds held in the card if it is lost or stolen. The cards are chip- and PIN-enabled, can be cancelled by a phone call and are not linked to any bank account, so, at worst, you cannot lose more than the balance on the card.
In fact, you don’t even have to have an account with the bank that supplies the card; you can pop in and get one at any of the banks for a fee of between R99 plus VAT (Standard Bank, one card per currency) and R125 plus VAT (Absa, one card with a capacity for four currencies). You’ll need to provide the usual evidence of identity and residence, as required by the Financial Intelligence Centre Act, and all the cards can be reused until they expire.
Brand explains that the funds on the Amex card never expire, although the card does carry an expiry date “to ensure that it can be used at merchants that require customers to provide a card expiry date during the transacting process”. The card cannot be used after the expiry date, but Amex will supply a replacement card free of charge.
All the card providers have processes in place for dealing with lost or stolen cards and for supplying emergency cash – see below. However, it does make sense to spread the risk, as in all financial matters, by taking a back-up credit card or a quantity of cash or traveller’s cheques.
Apart from the risk of loss and theft, there is a risk of the bank regarding activity on a card as suspicious and disabling it without warning.
In May last year, a South African traveller reported on the customer service website hellopeter.com that he was stranded in Asia without access to funds because his FNB Visa Cash Passport had been mysteriously stopped. Two weeks later, and despite the intervention of his parents in South Africa, the problem had not been resolved.
Asked about the case, Patty Seetharam, senior communications manager at FNB, told Personal Finance that “the main cause of the problem was that an incorrect PIN was used”. The biggest card-fraud threat to customers was skimming and cloning of cards, she said, and FNB was in the forefront of fraud detection and prevention.
“We continually monitor all card transactions for unusual or fraudulent activity and take the necessary proactive measures to prevent fraud,” Seetharam says. She did not address the delay in restoring the customer’s access to his money.
So it is possible to be a victim of the vigilance the banks exercise on your behalf. The well-known Lonely Planet travel guides publish their Best Ever Travel Tips, in which they say “the golden rule for travel money is never keep all your eggs in one basket. If you get robbed or lose your stuff, you lose everything.” It recommends that you carry some cash in a widely accepted currency, such as US dollars or euros, and store it separately from your cash card, air tickets, passport and other valuables.
If you prefer traveller’s cheques as a back-up, check first that they are readily accepted by banks and bureau de change services wherever you are going. According to Lonely Planet, US dollars are your best bet in the developing world. Carry lots of small denominations and stow them separately from your record of the cheques you have used and the emergency phone number.
Last resort
Even the best back-up plans can fail, however, and if that happens, it is reassuring to know that you can receive money abroad very quickly via Western Union or Moneygram. Both have hundreds of thousands of agents in about 200 countries and are well represented in South Africa.
Western Union money transfers can be done through branches of Absa Bank, and you don’t need an Absa account, although if you do have one, your transfer can be done conveniently via internet or cellphone banking. Western Union also operates through foreign exchange dealers Amex, Tower, Master Currency, Travelex and EuroDollar.
According to Absa’s website, Western Union transfers make money “available for collection in minutes, subject to agents’ operating hours and differences in time zones. This is because the Western Union money transfer service uses advanced technology and a unique, worldwide computer network to ensure quick payout.”
Moneygram operates through Standard Bank, FNB and Bidvest Bank. As well as being transferred person to person, funds can be deposited directly into a cash card or bank account, or sent and received via ATMs and Moneygram kiosks at the destination. You also have the option of making transfers via internet banking and, to a limited extent, mobile phones. Most transfers take no more than 10 minutes, but some areas have an optional overnight service and some agents can even do home delivery.
The limit per transfer is R30 000, subject to exchange control regulations. Of course this kind of service comes at a price, with commission charged on your purchase of a foreign currency and then a fee attached to sending the currency to the recipient.
MAIN EXCHANGE CONTROL RULES
All foreign exchange transactions in South Africa are subject to regulations governed by the South African Reserve Bank (SARB).
South African residents planning to travel to other countries should be aware of the following main rules:
* There is a single discretionary allowance of R1 million a calendar year for residents over the age of 18. This allowance may be used, apart from travel, for donations, gifts, study, alimony and child support, wedding expenses and maintenance payments.
* Residents under the age of 18 qualify for a travel allowance of R200 000 a calendar year.
* Foreign currency for travel purposes may not be bought more than 60 days before the date of departure. A valid air ticket must be presented, indicating that the journey starts from South Africa.
* Travellers must convert unused foreign exchange to rands within 30 days of returning to South Africa.
* The costs of land arrangements (hotels, cruises, tours, and so on) form part of your travel allowance, but the payment of airfares does not.
* Use of your credit card while travelling abroad forms part of your R1-million travel allowance.
* In addition, each traveller may take R25 000 in SARB notes when travelling abroad.
* Where the insurance value of your personal belongings, not for sale, exceeds R50 000, you will need an NEP form attested by a bank or by Customs and Excise. (NEP stands for “no exchange proceeds”, and the document is a declaration of goods leaving the country without any foreign exchange implications.) Enquire at your nearest foreign exchange outlet should you need this form.
* If you use your credit card to buy goods and services online from another country, the value should not exceed R20 000, or you will pay customs duty.
* South African residents also have an allowance of R4 million a calendar year to invest abroad. Should you want to use this allowance, you need to provide your bank with a tax clearance certificate issued by the South African Revenue Service.
* This summary of the exchange control regulations was reproduced with the permission of Standard Bank and can be found at www.standardbank.co.za/travelwallet (click on “Foreign exchange” > “Exchange control”).
BE ON YOUR GUARD WHEN ABROAD
Convenient as they are for carrying your stash of travel cash, and despite chip and personal identification number (PIN) protection, prepaid cash cards have their security weaknesses. We use our cards so often at home that we get into certain patterns of use, which may not be as careful and security-conscious as they should be.
* Be extra careful with your card and PIN when travelling. If you are not as scrupulous as you should be about PIN security at home, make sure you never let your guard down when using your card in a foreign country. Make sure your card is clearly visible at all times and shield the key pad religiously when inputting your PIN, whatever the circumstances.
* If all your funds are in one card, you risk being left stranded with nothing but the coins in your pocket if the card is lost or stolen. As the Lonely Planet guide suggests, make sure you have back-up funds: some currency and/or traveller’s cheques in a generally accepted currency, such as United States dollars, or a credit card, or a contact who can lend you emergency funds if necessary.
* If you lose your card, you’ll have to cancel the card immediately via the supplier’s call centre in South Africa. This will be less nerve-wracking if you know exactly where to find the contact number, wherever you are, understand the emergency assistance procedure and have authorisation in place to access extra funds. Review the assistance procedure when you collect your card.
* Emergency assistance is not just for lost or stolen cards; you can use it for any card-related problems, including forgotten or compromised PINs and passwords. All the cards give you access to your account online, so if possible, keep track of your balance and transaction record and query any payments you don’t recognise without delay.
COMPARING CASH CARDS
For the purposes of this article, we compare the features of the prepaid, reloadable cash cards offered by the top four banks. Note that other cards with very similar features are available. For example, foreign exchange dealer Travelex offers a single-currency Mastercard Cash Passport in one of four currencies.
If you are travelling to countries other than the United Kingdom, the United States and Australia, and outside the European Union, Bidvest Bank and foreign exchange dealer Master Currency offer a Visa cash card called the World Currency Card in any one of 18 currencies, including Indian rupees and Israeli shekels.
Absa Multi-currency Cash Passport (Mastercard)
Cost of issuing a card: R125 plus VAT
Currencies available on one card: US dollars, British pounds, euros and Australian dollars (more currencies will become available in future)
Validity: Five years from the date of issue
Cost of loading/reloading funds: Commission of 1.65 percent on the load or reload value
Minimum load value: 100 units of the applicable currency – for example, US$100
Maximum load value: US$60 000, £30 000, €40 000 or Au$60 000
Daily point of sale (POS) transaction limit at Mastercard merchants: US$7 500, or the equivalent in pounds, euros or Australian dollars
Daily ATM withdrawal limit: US$2 500, or the equivalent in pounds, euros or Australian dollars (ATM operators may apply lower limits)
POS transaction fee: None, provided the card is used at MasterCard merchants
ATM fees per withdrawal: US$3.00, £1.80, €2.00 or AU$3.00
Currency conversion fee: Four percent (only if you use a currency not loaded on the card)
Online statements: Available through “My account” at www.cashpassport.com/multi. First select the country (South Africa) from the drop-down menu to get to the local home-page and then click on “My account”
Top up while travelling: Yes, subject to the exchange control regulations and if the traveller has made arrangements for this facility before departure
Inactivity fee: Yes – the equivalent of US$2 a month after 12 months if a balance remains on the card
Global reach: Accepted wherever MasterCard is accepted – about 35.9 million locations worldwide
Emergency assistance:
* 24/7 toll-free number to a call centre in South Africa for assistance and to disable a missing card. Toll-free numbers are supplied with the card, or are available via website www.cashpassport.com. The call centre can arrange for the services of an interpreter for assistance over the phone (range of languages available).
* The bank will pass a message on to family or friends.
* Emergency cash (up to the available balance on the card) can be sent to the traveller via Western Union.
* Replacement card can be couriered to the traveller within 24 to 48 hours (depending on the location).
* If a passport is lost or stolen, the call centre will provide telephone numbers, addresses and opening hours of the nearest consulate or embassy.
Standard Bank TravelWallet (Mastercard)
Issuing fee: R99 plus VAT per card/currency
Currencies available (each on a separate card): US dollars, British pounds, euros, Australian dollars
Validity: Four years
Cost of loading funds: 1.85 percent (minimum R60)
Minimum load value: None
Maximum load value: US$60 000, £40 000, €50 000, AU$65 000
Maximum load per currency per year: None, subject to the annual travel allowance of R1 million
Daily POS transaction limit: US$7 500, £5 000, €7 500 or AU$7 000
Daily ATM withdrawal limit: US$2 500, £1 500, €2 100 or AU$3 500 (12 transactions a day)
POS transaction fee: None
Currency conversion fee: Two percent (only if you use a currency not loaded on the card)
ATM fees per withdrawal: US$3.00, £1.95, €3.00 or AU$4.40, plus any withdrawal fee imposed by the foreign ATM operator
Online statements: Available free of charge at www.standardbank.co.za/travelwallet > Account status
Top up during travel: Yes, through the foreign exchange outlet that supplied the card, if arrangements have been made beforehand
Inactivity fee: None
Global reach: Wherever MasterCard is accepted
Emergency assistance:
* TravelWallet call centre is available 24/7 (local and international numbers are supplied with the card and are available from www.standardbank.co.za/travelwallet) to disable a missing card and make alternative arrangements.
* Emergency cash advance is available via a money transfer, up to the balance on a lost card. Daily limits apply to large balances.
* Emergency card replacement service is available when necessary. Replacement takes “a day or two”, depending on the traveller’s location.
First National Bank Visa Cash Passport
Issuing fee: R110 (inclusive of VAT) per card/currency
Currencies available (each on a separate card): US dollars, British pounds, euros or Australian dollars
Validity: Three years
Cost of loading funds: 1.9 percent (minimum R65)
Reload fee: None
Minimum load value: 100 units of each currency
Maximum load value: US$60 000, £30 000, €40 000 or AU$60 000
Maximum load per currency per year: None, subject to the annual travel allowance of R1 million
Daily POS transaction limit: US$7 500, £5 000, €7 500 or AU$7 000
Daily ATM withdrawal limit: US$2 500, £1 500, €2 000 or AU$3 000
POS transaction fee: None at Visa merchants
Currency conversion fee: No set rate; conversion rate is set by foreign exchange specialist Travelex
ATM fees per withdrawal: US$2.00, £1.50, €2.00 or AU$3.50, plus any withdrawal fee imposed by the foreign ATM operator
Free online statements: Register on www.cashpassport.com before departure, then log onto “My account”
Top up during travel: With ease, by calling the FNB call centre’s international telephone number, as long as exchange control limits are not exceeded and the requirements of the Financial Intelligence Centre Act have been met before departure
Inactivity fee: US$2.00, £1.50, €2.00 or AU$3.50 a month after 12 months
Global reach: Accepted at millions of locations around the world
Emergency assistance:
* Cash Passport includes Global Emergency Assistance 24/7, wherever you are in the world, to help with almost any emergency;
* Toll-free number on the card or available online at www.cashpassport.com;
* Card replaced as quickly as possible: 24 hours in the United Kingdom; up to a week in some other countries;
* A back-up credit card recommended in case of emergency; and
* Money sent via Moneygram if necessary.
Nedbank American Express GlobalTravel Card
Issuing fee (includes back-up card): R100 plus VAT per card/currency
Currencies available (each on a separate card): US dollars, British pounds or euros
Validity: Five years; free replacement
Cost of loading funds: 1.85 percent (minimum of R50)
Minimum load value: None, but the minimum cost of R50 applies
Maximum load value: US$40 000, £25 000 or €30 000
Maximum load per currency per year: US$60 000 or the foreign currency equivalent
Daily POS transaction limit: None
Daily ATM withdrawal limit: US$1 500, £1 000 or €1 000
POS transaction fee: None
Currency conversion fee: None until February 1, 2015, then three percent
ATM fees per withdrawal: US$2.00, £1.50 or €2.00, plus any fee imposed by the foreign ATM operator
Top up during travel: From January 1, 2014, emergency reload service is available to Nedbank account holders only, if this has been requested at the time of purchase
Free online statements: All cardholders can register their cards on the GlobalTravel Card website and track their spending wherever they are
Inactivity fee: US$2.00, £1.50 or €2.00, depending on the currency on the card
Global reach: Accepted in about 200 countries and at more than 800 000 ATMs around the world – look for the American Express (Amex) logo, and find a list of ATMs worldwide at www.americanexpress.com
Emergency assistance:
* 24/7 Customer service centre. The emergency number is on the back of the card or a full list of emergency toll-free numbers is available from the Amex GlobalTravel Card website. Failing the toll-free number, cardholders can use the Amex international contact number for assistance, and collect calls are accepted.
* Back-up card with a different card number and PIN from the primary card is issued at the time of purchase to minimise inconvenience if the primary card is lost or stolen.
* Emergency card replacement is free to the cardholder’s location if the back-up card is lost, stolen or damaged.
* Emergency access can be given to the funds that remain on the card while a replacement card is on the way. Funds are transferred via Western Union and are subject to daily limits, depending on the currency: US$1 500, £1 000 or €1 000. Funds are released to the cardholder only and a photographic identification (identity document or passport) may be required.
* Cardholders have access to Amex’s Global Assist services, which are available 24/7. These include:
– Emergency travel assistance;
– Lost luggage assistance;
– Lost passport assistance and card cancellation;
– Medical and legal assistance referrals; and
– Medical transport.