Traveller’s cheques have been in decline ever since the 90’s when ATM machines, debit cards and automated teller machines became widely available. Many banks won’t even cash traveller’s cheques – sometimes even the issuing bank – which can render them completely worthless.
History and Future
Between the 50’s and 90’s traveller’s cheques were the main form of currency for people on holiday. They were considered a safe option as they allowed people to pay for goods and services abroad without having to carry large sums of cash.
Originally several different companies and financial institutions offered traveller’s cheques, such as American Express, Thomas Cook and the Bank of America. Due to wider acceptance of digital payment methods and increased security, the need for these cheques started to decline. As more and more businesses refused to accept traveller’s cheques as currency, they became less attractive for travellers. While they are still usually accepted in America, they are no longer widely accepted in Europe and Asia.
According to Forbes, over 66% of all business transactions are now (as of 2014) conducted with either a credit or debit card. Even the amount of cash purchases are expected to significantly drop over the next few years – this doesn’t bode well for traveller’s cheques.
Protection Against Theft
One of the main reasons why people use traveller’s cheques is because they can be replaced if they are lost or stolen. When they are sold, they come with a receipt which shows the serial numbers that are printed on the cheques; therefore, if a cheque is stolen, it can be proven that they were purchased.
Charges and Denominations
Like cash, traveller’s cheques are available in various different currencies and usually have denominations in multiples of 10 (x100 for yen). Most banks will issue traveller’s cheques for free; however, some will charge a 1-2% fee.
Unlike digital payment methods, the denominations can be very restricting as some businesses won’t provide change in cash. This can be very problematic and cause buyers to spend more money than they would have otherwise. People who belong to banks that charge a fee are also commonly put off and feel cheated out of their money. While 1-2% isn’t a large cut, it can certainly add up and is one of the contributing factors of their decline.
Deposit and Settlement
Payee’s receiving traveller’s cheques must follow standard deposit procedures. They usually have to fill out a deposit slip and submit the cheque in person. Their bank will then have a clearing time – often in the region of three to five days – before the money becomes available.
The deposit and settlement procedures are far more inconvenient than conducting a digital transfer. In addition, most banks will settle digital payments within one or two days, which alleviates excessive waiting times.
The primary purpose of traveller’s cheques is to provide a secure currency that can be replaced if it gets lost or stolen; however, this has led to various scams. Fraudsters will often purchase traveller’s cheques and sell them at a reduced rate. They will then report them missing to their issuer and be given a replacement.
This problem is one of the main reasons why most businesses opt out of accepting traveller’s cheques or impose stringent checks if they do. Many businesses ask for additional documentation in order to further aid security, such as a photo ID. This ensures that they are the person listed on the cheque.
Some businesses may even contact the issuer directly or use a third party validation service to determine whether they should accept the cheque. However, this can present other problems. For example, third party services will often charge a small fee and may reveal information that has no bearing on the validity of the cheque, such as if the individual has a poor credit.
To most businesses the security problems are simply too much to manage and a risk that’s not worth taking, especially when there are safer digital options available that will guarantee payment.
Alternative Payment Methods
Credit and debit cards have been widely accepted ever since the 80’s; however, it wasn’t until the 90’s that they started to have a significant bearing on the travellers’ cheque industry. Although debit and credit cards can be used in virtually any ATM machine worldwide, banks will often charge a transaction fee for cash withdrawals. To combat this problem, many companies and financial institutions issue traveller’s credit cards.
A traveller’s credit card is a pre-paid card in a specific currency. It allows travellers to withdraw money and make payments without incurring charges. In addition, like travellers cheques, they can be replaced if they are lost or stolen and are cancelled when reported missing.
Foreign currency brokers such as Currency Index can transfer funds abroad at commercial exchange rates. Payments are sent quickly and securely and can provide significant savings when paying people or businesses. Foreign currency brokers are a common alternative when making payments from outside the receiver’s country.
With the wide availability of ATM machines and digital payment options, there is no longer a need for traveller’s cheques. In a world where convenience and safety take precedence, it wouldn’t be surprising if the industry completely dies out within the decade.