Exchange with the Times

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Foreign exchange needn’t become the bane of your travels – not even if your travels are in Africa. Business Traveller Africa decided that the time was right to take an in-depth look at the pros and cons of the various options out there, how things have changed and what the future holds for forex, with Jacqueline Cochrane doing the investigating.

To many people, foreign exchange is a necessary evil – one that’s right up there with other inescapable nuisances, such as visas and vaccinations. African travellers are often perplexed by an ever-increasing range of forex offerings, and it’s sometimes difficult to determine their relevance to a continent that at times likes to sell itself as developed and ‘modern’, whilst remaining mysterious and disorganised in most areas.

Once upon a time, purchasing buying power in a different currency was synonymous with that dignified piece of paper called a traveller’s cheque. But times are indeed a-changing. More and more African countries are counting among the world’s fastest-growing economies, and these nations are rapidly gaining prominence as business destinations. At the same time, it is becoming imperative for business travellers to be informed and savvy about forex choices. So, what are the options out there?

Traveller’s Cheques

Until relatively recently, traveller’s cheques enjoyed unparalleled popularity. This forex method was user-friendly, cost-effective and widely accepted, and it was cherished for being more secure than cash (only the signatory can use or exchange a traveller’s cheque, and then only with proof of identification). The fact that they’re easily replaced and never expire has always been an added bonus. 

But the traveller’s cheque is rapidly becoming a ghost of forex past. Fewer banks, foreign retailers and merchants are accepting them – and when they do, they often levy exorbitant fees. Additionally, customers no longer want to be bound to business hours to access or use their forex. This is the age of the ATM, where plastic equals spending power and swiping a card – at any time of day or night – is second nature.

The traveller’s cheque is becoming obsolete, and Andrew McDonic , Managing Director of American Express  Foreign Exchange, is the first to admit it. “Worldwide, the demand for traveller’s cheques has come down substantially. Some people still swear by it, and I think people use it to put money into overseas accounts, but traveller’s cheques really are dying down.”

“It goes back to when the Euro came into being,” explains McDonic. “That’s when fees started being levied, and now there are very few places that don’t charge an encashment fee. This used to be one of the advantages in the past – you bought traveller’s cheques, paid your commission upfront and changed your money at the end. Now, even in Germany, some big banks refuse to change traveller’s cheques.”

In most African countries, using traveller’s cheques is limited to major centres, and even then, exchanging them can be problematic and expensive.

But McDonic doesn’t sound worried, and that’s probably because a new product has just been launched in South Africa – the American Express Global Travel Card. “The [Amex] prepaid card is a plastic traveller’s cheque, for want of a better word,” says McDonic.

Amex may well be on to something, as travellers’ trends show that preloaded cards are undoubtedly the way of the future for forex.

Prepaid Cards

In the beginning, people were hesitant. Traveller’s cheques were very popular for many years, but customers see technology is changing,” says Andrew Stainforth, Client Relationship Manager: Travel Agents and Tour Operators from Travelex/FX Africa. “The move is definitely more towards cards – it’s safer and easier.”

The pros of using a prepaid travel card are numerous. As with any debit card, they can be used to draw local currency cash at an ATM, or make payments at restaurants, stores and hotels. Payment is usually verified by pin code and signature. They are currency-specific, meaning that once the card is loaded, it is immune to currency fluctuations – as long as you use it for the currency specified for that particular card. Although it requires some admin, these cards are also reloadable and they remove the risk of having to carry around large amounts of cash.

Cost-wise, prepaid cards compare favourably with other forex options. Typically, a fee is charged for the card and its activation (around R100), as well as a commission (from 1.75% to 2.2%) for foreign currency loaded. Using the card to draw money or pay for goods in a currency other than the one it’s specified for incurs additional currency-conversion charges, and sometimes a fee is charged for the remaining value of a card to be cashed out upon the customer’s return to their country of origin.

Prepaid cards are a fantastic forex solution for travellers visiting Europe, Britain, the US and even countries like India, China and Australia. But the efficacy and convenience of these cards relies entirely on the telecoms infrastructure of a country, and – although some countries are rapidly catching up – telecoms in many African nations can be euphemistically described as erratic.

In Africa, Cash is still King

ATMs are often hard to find in African countries, and foreign notes still reign supreme. “Africa is still very much a cash market,” says McDonic.  

Choose your currency with care. The US Dollar is still the most convenient form of foreign cash to travel with in Africa. “In Francophone Africa, the Euro is fairly strong, but the Dollar really is the best choice,” says Craig MacFarlane, Head: Retail at Bidvest Bank Rennies Foreign Exchange. MacFarlane notes that travellers should order the currency of their destination if possible, but he points out that Exchange Control, as regulated by the South African Reserve Bank, determines which currencies can be traded.

“If we can get the currency for you, we’ll let you know,” he advises. “If we have it in stock we can get it to a branch within 24 hours. But some currencies you just don’t trade in. Firstly, it could be a risky currency that devaluates. Secondly, it doesn’t make sense for us to just sit on a currency. We’ve got to buy it in, give you a reasonable rate, and be reasonably sure that it can be sold in a certain timeframe. It’s a demand-and-supply thing, and that’s if it’s a tradable currency.”

McDonic concurs. “For African countries that have a stable currency, such as Namibia, Botswana and Mauritius, you can get the notes here. In all of those other markets, the US Dollar is pretty much the de facto currency anyway. They all have Dollar rates.”

Keep your cash in small denominations. Even though the rule of thumb for African travellers is to have cash on hand, this is ultimately to cover day-to-day expenses such as taxi fares, tips, restaurant bills and to pay for goods from stores as well as informal merchants. For this reason, and also to avoid being stuck with cash in a currency that’s hard to get rid of or exchange after your trip, travellers should always try to have notes and change in smaller denominations. If you are obtaining this cash from an ATM or by exchanging traveller’s cheques, do so as soon as you arrive at the airport, as bureaux de change and ATMs are generally more reliable here. “It’s better to have a USD50 bill changed rather than USD100, or you might get back home and have wall paper,” McFarlane advises.

Be streetwise. When travelling in Africa, beware of counterfeits and other cons. “If you’re going to buy currency, buy from a reputable place – somewhere where they’ve verified that the notes are good and clean and not counterfeits,” says MacFarlane. The same goes for exchanging your Dollar notes at your destination. He warns: “We had a customer who went to Angola. He handed in some Dollars to change somewhere, and gave them USD500. They came back and said they could only change USD200, and gave him back USD300 in notes that were switched to counterfeits.”

MacFarlane also cautions against using older bills: “In Africa, they always want the newer Dollar bills, with colour-shifting ink. They came out about 10 years ago. The new ones have better anti-counterfeiting protection, so they push to have the newer notes.”

The Ideal Travel Wallet in Africa

Follow these three guidelines for the ideal forex solution in Africa:

  1. Carry cash in small denominations for smaller expenses.
  2. Call your hotel beforehand to find out what type of cards they accept. Visa and MasterCard are more readily accepted in African countries than American Express and Diner’s Club. Use a card to settle your bigger expenses. Avoid using your credit card for day-to-day expenses, as the fees incurred are often 3-4% higher than a prepaid card or cash. Remember to notify your bank beforehand if you intend to use your credit card abroad.
  3. Always keep a back-up card in case your primary card is stolen, lost, demagnetised or swallowed by an ATM.  

The Future of Forex

Forex options are swiftly changing and growing. While the US catches up with chip-and-pin technology, credit card brands are working hard at increasing their footprint in Africa. Stainforth mentions that there is also talk of launching multi-currency cards. “At the moment there’s a separate card for Dollars, a separate card for Pounds and so forth, but they’re doing a testing phase on multi-currency cards. Hopefully in the future, customers will have one card and you’ll be able to select the currency of that country.”

The true revolution in forex, however, rests with travellers becoming more informed. From ATM locators to a plethora of currency-conversion sites, being forex-savvy is often a simple mouse-click away. Additionally, there are various smartphone apps to assist travellers with foreign exchange. (Android users should look out for apps like FXware Currency Guide, while BlackBerry apps such as WorldMate assist in converting currencies.) Ignorance about all things forex almost always translates into a loss of precious time and money – something that the serious traveller can simply no longer afford.

Some Prepaid Card Options

1. American Express Global Travel Card

Already available in countries like Australia, the US and Brazil, the Amex prepaid card is currently being rolled out in South Africa. “Prepaid cards is a growing segment and this is the right time to launch,” says Ian Barrable, Director: English Speaking Africa at American Express. “Currently, it is available in Dollar, Pound and Euro. We issue two cards. The primary card is loaded. If it is stolen, the back-up card is activated. If that one is also stolen, you’ll have a free replacement card sent to you wherever you are.” For the time being, there will be no card fees for this product, which will primarily be available through NedBank. Amex are hoping to implement chip-and-pin technology by the end of 2012. “The card has the security of a traveller’s cheque and the convenience of plastic,” adds Barrable. Visit www.americanexpress.co.za.

2. Bidvest Bank/Rennies Foreign Exchange World Currency Card

The World Currency card is currently available in the US Dollar, Euro, British Pound, Australian Dollar, Chinese Yuan, Indian Rupee, UAE Dirham, Israeli Shekel and Mauritian Rupee. A Visa card, the World Currency Card does not feature chip-and-pin technology as yet.

In addition to the normal benefits of a prepaid card, the World Currency Card allows customers to track spending via instant text or email notifications after every transaction and ATM withdrawal. “It is nice, just from a peace-of-mind point of view. You know the deal’s gone through correctly and you feel a bit more comfortable,” explains MacFarlane. World Currency Card transactions at merchants are free, while withdrawing cash at an ATM incurs a fee. A commission of 2.2% is levied for foreign exchange loaded, and the card costs R100 (customers get a free back-up card). A replacement card can be couriered to customers at their own cost. Visit www.bidvestbank.co.za.

3. Travelex FX Africa Cash Passport

The Cash Passport comes in two brands: “We have the MasterCard, which has chip-and-pin protection, and the Visa card. Chip-and-pin is more Europe focused – they’re the leaders in that market. In the US, chip-and-pin is nowhere near what we have in South Africa or Europe,” says Stainforth. The Cash Passport MasterCard is valid for five years. In case of a lost or stolen card, a replacement card can be issued. In countries where infrastructure does not allow for this, customers are given a reference number and are directed to the closest Western Union office to have the remaining value paid out. Available in Euro, British Pound, Australian Dollar and US Dollar, a card costs R100, a commission of 1.75% is levied for forex loaded and a replacement card costs R35. Visit www.travelex.co.za.  

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