Travelex, the foreign-exchange specialist, and MasterCard have disclosed plans for rolling out North America's first prepaid foreign-currency card. Travel agents will be able to sell it beginning in the second quarter.
The card and related products will bring "a whole new revenue stream to agents," according to Christopher Russell, Travelex's executive vice president of outsourcing for the Americas. Russell said agents will earn a slice of the exchange fee.
Travelex will introduce a Visa version of the product, as well.
The new, reloadable card, called Cash Passport, will be available in euros and British pounds. Travelex set a base exchange rate for the card at four points above wholesale interbank rates. The interbank rates are those used by banks to exchange massive amounts of money, Russell said, adding they are the rates widely published on the business pages of newspapers.
The total add-on for the foreign-currency cards will be 4.5% to 5.5% "depending on how much the selling agent wants to make" (from 0.5 points to 1.5 points), but sellers won't be allowed to add any other fees, Russell said. The selling travel agency also earns a percentage of the dollars exchanged when selling currency, Russell said, whereas with a U.S.-dollar card, the pay most often is a flat fee.
Russell said the resulting exchange rates will be "in the ballpark" with the costs of currency when making purchases abroad using credit cards and considerably less expensive than buying cash at a kiosk in the U.S. or overseas.
Travelex has worked with Virtuoso and the Carlson franchise group to establish systems that satisfy U.S. banking regulations, so agents can sell the cards and other Travelex products. The complication, Russell said, is that agents have to be licensed as money service bureaus, so Travelex devised a program whereby agents can be set up and registered. An alternative arrangement will enable agents to earn fees for referring the business to Travelex.
Russell said beta testing with a few members of Virtuoso and Carlson associates is complete, and Travelex has begun signing up those agencies to sell these products. He said Travelex is pursuing deals with Signature and Travelsavers, as well.
Besides the foreign-currency cards, the product line includes foreign currency, prepaid U.S. currency cards, and wires and drafts.
David Sear, Travelex's division managing director for global outsourcing, said Travelex distributes widely among travel agencies in Australia and the U.K. and has recently signed up 1,000 agencies to sell its products in Japan. The effect of the new revenue stream is "massive," he said, adding some agencies make as much money off the currency business as they do selling travel.
Russell said the prepaid card will be the least expensive way to exchange dollars for spendable cash and the least expensive way to carry money in a noncash form. Cash on the cards will be redeemable wherever MasterCard is accepted, and holders can get cash at bank ATMs overseas although that will involve a fee, usually around $2, Russell said.
Travelex has currency-exchange outlets all over the world, but using them to change money is "about twice as expensive as this card," he said, and those outlets assess a flat fee on top of the exchange rate. Part of the reason for this is because "airports take a big cut," and there are costs associated with moving real currency, as opposed to the electronic kind.
As for the relative value of prepaid cards and credit cards, the prepaid cards "can be less or more expensive because those rates [exchange rates applied by card issuers] vary so much, but we are in that ballpark," Russell said.
When MasterCard and Visa set their base rates, they apply proprietary formulas that they describe as based on "wholesale" rates. They then charge their issuing banks a 1% exchange fee. Some issuing banks add up to another two points to the cost of money and pass the entire 3% on to customers. A few don't add any fee or even pass on the 1% exchange fee.
Even with comparable costs, prepaid cards and credit cards serve different purposes. A prepaid card provides a way to avoid carrying lots of cash to cover things not usually purchased with credit cards, Russell said. Travelex is trying to change the behavior of Americans because they have been paying too much for their cash, Russell added. He expects the card to sell well for corporate and leisure travel.
The old solution for protecting cash was travelers checks, which are also more costly than prepaid cards, Russell noted. Travelex, once the world's largest issuer of checks after buying the Thomas Cook travelers check business, has stopped selling the checks. Russell said check sales were dropping 20% per year while sales of prepaid card products were doubling each year.
As with travelers checks, Cash Passport funds are protected if a card is lost or stolen. "We can service you anywhere in the world and get you a new card within at least 24 hours," Russell said.
West Suburban Bank in Chicago is the issuing bank for MasterCard Cash Passports. The card also will be sold in banks and at Travelex retail locations in North America.
Travel agents interested in selling the new foreign-currency cards can contact Becky Phipps at (402) 763-9230 or by e-mail at [email protected].
To contact the reporter who wrote this article, send e-mail to Nadine Godwin at [email protected].