Forex

Mixed Bag of Tricks

Along with navigating the bureaucratic maze of visa applications, when most corporate travellers plan their next business trip abroad, their first thought is perhaps the most important one: how am I going to pay for it all and with what?

And I don’t mean managing dwindling travel budgets or the return-on-investment. Rather, physically what is going to change hands when you check into your hotel, hop into a taxi or ask for the bill when entertaining clients at dinner? Is it a wad of cash? A gold embossed credit card? Perhaps even archaic travellers’ cheques?

For as much as we live in a globalised economy, paying for your breakfast or your bed doesn’t always come easily when travelling on business. Although the dollar is widely accepted across the globe, it pays to know where cash, card or cheque will get the job done quickly, to let you get on with the serious business of doing business.

So what is the solution when stepping on a plane to cross a border? How should you plan to pay for your trip? If there’s a golden rule, it’s to not put all your eggs in one basket, say foreign exchange experts. Depending on the destination, always hedge your bets with a mix of paper and plastic. That’s the smart approach.

So, that’s the way forward, but what about how it’s been done in the past? There’s one option that is becoming all but redundant in today’s inter-connected world: the old-faithful travellers’ cheques. Remember those?

While travellers’ cheques were for decades the gold standard for carrying currency abroad, the high cost, laborious process and dwindling number of merchants that will encash them, have seen this corporate travel stalwart largely consigned to the history books.

“They are not the ideal method of carrying foreign currency,” agrees Harry Nkumbula of Ace Currency Exchange in Johannesburg. “There is a growing difficulty in being reimbursed, and turnaround time when the cheques are lost is quite a challenge. Also, fees involved when cashing travellers’ cheques are high.”

Commissions charged by merchants for cashing cheques can be upwards of 5%, putting pressure on corporate travel budgets already feeling the pinch. So, with cheques left at home, what are your best options for carrying currency on the continent?

“It is a good idea to carry a mixed purse of products when travelling – cash to pay for lower value items such as taxi fares and snacks, a pre-paid card for shopping at larger stores, and a credit, debit or cheque card as a back-up option,” says Sugendhree Reddy, Head of Personal Markets at Standard Bank South Africa. “Don’t forget to notify your bank if you are going to be using your credit, debit or cheque card whilst travelling abroad.”

That’s if you want to avoid a panicked phone call from your personal banker or concerned consultant in your bank’s credit card division.

“Travelex recommends travellers take a mixed-wallet approach to carrying travel money – a mixture of cash and cards,” agrees George Adams, Head of Retail for Travelex Foreign Exchange. “It’s always advisable to have some foreign currency in cash on you when you arrive, for a drink or taxi when exchange bureaux may not be open or ATMs readily available, especially in Africa.”

That’s because, while Africa may be ripe with opportunity for entrepreneurs, when it comes to accessing international currency networks, tapping into the grid can be challenging, to say the least.

In many corners of the continent, cash is still king and the preferred method of payment. And, particularly in West and Central Africa – internationally-linked ATMs can be hard to find, as most businesses expect payment in cold, hard currency.

“It is important to find out what types of foreign exchange products are accepted in the country you will be visiting, as this will directly impact your ability to transact,” says Reddy. “This is especially relevant when travelling to an African country. Although you may be able to use a Visa or MasterCard at ATMs and merchants in many countries, there are still some countries where cash is the preferred mechanism for transacting.”

That may be a bit of an understatement, particularly north of South Africa.

“At Ace, we recommend cash for travel into Africa. It may not be as safe as a card, but it is the common method that travellers use,” agrees Nkumbula, adding that major expenses – such as hotels and transport – should be paid for with a wire transfer before departure, to reduce the amount of cash you’ll need to look after.

And it’s not just a matter of taking cash – knowing which currency to carry is equally important, particularly with so many types dotted across the continent. That being said, there is one currency that rules the roost, as most forex advisors will testify to.

“Whilst most African countries have their own currency, the US dollar is widely accepted and we advise customers to travel with this currency – or the home currency of the country they are visiting,” suggests Adams. 

So, travelling with some cash for incidental expenses on arrival is a good idea, but it’s rarely feasible to pay for a two-week hotel stay in Angola with a bundle of dollars… not given the room rates in Luanda these days! So what else should be in your wallet as you jet off, and what else should you be aware of?

Plastic is what makes the global economy turn these days, and although Africa may be a little behind the curve, it’s still an important arrow in your forex quiver. But what kind of plastic, I hear you ask?

A credit card? Or perhaps one of these currency cards you keep hearing so much about?

Well, at least one of the above, but ideally both, according to the experts in the forex space.

While it might be tempting to simply slip your gold card into your wallet and head to the airport, charging everything to your credit card while travelling can have its pitfalls, and is not necessarily the smartest approach.

“Credit cards are not easy to replace if lost or stolen, especially if the traveller is abroad,” says Stephen Higgins, spokesperson for First National Bank in South Africa. “The fluctuation of the exchange rates also proves disadvantageous, whereas the pre-paid card allows a fixed exchange rate, which effectively means that the currency rate is hedged.”

“That being said, there are many instances where business travellers use their credit cards as back-up for unexpected expenditure. They are widely accepted and allow for easy tracking of transactions.”

But “if the card is lost or stolen, it can be a nightmare to have it replaced,” warns Nkumbula, and “with some banks, prior approval from their card division might be required prior to the card being utilised overseas.”

Credit cards also have a bad reputation when it comes to security, with card skimming opening the business traveller up to theft and identity fraud, particularly in certain parts of Africa.

Pay before – not as – you go

So, while credit cards are an excellent safety net for large expenses or when things go wrong, they dovetail perfectly with the ever-growing range of pre-paid currency cards available worldwide. Bidvest Bank offers its World Currency Card, Cash Passport is available at either Visa or MasterCard, and American Express offers a GlobalTravel Card, while Standard Bank punts its TravelWallet serviced by MasterCard.

So, there are a few serious players in the market. Regardless of which you choose, they all operate in much the same way: local currency is loaded onto the card in one of a number of major international currencies – the dollar is the most versatile for travelling in Africa – and the rate of exchange is fixed at the time of purchase.

From then on, the pre-paid card acts like a debit card, allowing you to withdraw at ATMs and swipe for purchases at participating merchants. Card issuers offer global 24-hour lost-card support, with replacement cards available worldwide within a matter of days. Some providers also offer emergency cash replacement up to the available balance of your card, with funds available within hours of reporting the card missing.

These are a “highly recommended option for corporate clients,” advises Nkumbula. “They are safer and more secure than cash, funds used abroad are easily reconciled, they are easily replaceable and there is usually a toll-free number to assist clients.”

In addition, pre-paid cards can be recharged while the cardholder is travelling, enabling – for instance – a company to top-up the available funds on a card to allow for increased expenditure, or provide additional travel allowance for an extended trip.

“With extreme weather changes and the possibility of a stay needing to be extended due to the grounding of airplanes, corporate organisations are seeing the benefit of having a card that can be easily topped up while the traveller is abroad,” notes Higgins. “More and more customers opt to pay for accommodation and car hire with the pre-paid card. It becomes easier for companies to reconcile expenditure upon the traveller’s return.”

And “because it’s pre-paid, it allows you to manage your budget effectively, as well as the ability to top up online or over the phone,” notes Adams. “MasterCard is also generally well accepted in African countries where cards are accepted as a method of payment.” 

On return, a detailed statement can be used for simple reconciliation of where the money went, and that is just one of the many features that corporates and regular business travellers are attracted to.

“Some businesses choose to give their staff pre-paid travel cards, as they find it easier to reconcile and control the travel spend by their employees – it’s a great budgeting tool,” says Reddy. “TravelWallet offers you the security of a travellers’ cheque and the convenience of a bank card, without being linked to your bank account.”

When “travelling to countries in Europe or the USA, having the bulk of your spend on a pre-paid card product would be advisable, as you have locked in your rate up front and can utilise the card at all merchants and ATMs,” adds Andrew McDonic, Managing Director of American Express Foreign Exchange in South Africa.

As with all great products though, these services don’t come for free and there are charges for purchasing the card, as well as commissions for loading currency. While ‘point-of-sale’ transactions are usually free of charge, ATM withdrawal fees also apply.

But the “ATM withdrawal fees are significantly less on the Travelex cash passport, compared to most credit and debit cards,” argues Adams. “The ATM withdrawal fees on the Travelex cash passports are fixed amounts of €2, £2 or $2, depending on which currency card the customer uses. ATM withdrawal fees on the major bank debit and credit cards in South Africa are on average R45 per transaction, which is more than double our average fees.”

“The charges on your credit card are in excess of 5% and are hidden, so you only find out what they are when you get your statement after your return, and you are not aware of what the rates were on the date the transaction took place,” agrees McDonic.

It’s a balancing act between cost, security and convenience, but the trend is certainly towards a mixed bag of hard currency and pre-paid card being the best option for continental travellers, with a credit card for back-up, in case of emergencies. The exact split between paper and plastic will boil down to which countries you’re visiting.

With those questions answered, your final hurdle is deciding where to buy your currency. Competition between high street banks and specialist foreign exchange merchants is intense, with rates, expert advice and ancillary services on offer to woo prospective clients.

Banks usually win on the convenience front, as they allow you to draw directly on funds in your account, or to transfer those funds to a pre-paid card. Banks often claim to offer the best rates, and they can smooth the paperwork involved in purchasing foreign exchange.

Specialist foreign exchange merchants, however, will make similar claims of offering the best rates, and are usually skilled in offering specialised forex services. Merchants are also often the best option for sourcing local currency for little-visited destinations – you’re unlikely to find many Somali Shillings at your local bank. Online ordering and free delivery are other value-added services on offer, with preferential corporate rates and services available for larger clients.

It’s a monetary minefield, but one where you need to tread carefully. Make the wrong decision and you could find yourself stranded without a franc, meticais or pula to your name – a situation that’s certainly not good for business. So, do your homework and conduct some research into what approach will suit you best.

They say you have to spend money to make money, and when it comes to choosing forex for your next business trip across the border, it certainly pays to talk to the experts and invest – just a little – in filling your wallet with the right product.

Play by the rules

South African adult citizens travelling outside the Common Monetary Area (covering South Africa, Lesotho, Swaziland and Namibia) will need to comply with Exchange Control Rulings on taking money out of the country, as travel expenses are included in the R1 million annual discretionary allowance laid down by the South African Reserve Bank.

However, “businesses may also apply for an omnibus allowance – a travel allowance that is allocated to a business,” advises Sugendhree Reddy, Head of Personal Markets at Standard Bank South Africa. “The business can then allocate this allowance to their representatives that travel on business, so that the representative’s personal allowance will not be affected. This allowance is valid for a year and must be renewed at the beginning of each calendar year.”

In other African countries, similar exchange controls, anti-money laundering and ‘Know Your Customer’ (KYC) rules exist,” adds Reddy, although “the stringency of the rules varies per country.”

Get your paperwork in order

South Africa’s Financial Intelligence Centre Act (FICA) means residents can’t simply walk up and buy foreign exchange. To purchase foreign currency as cash or card from a bank or merchant, you’ll need to present:

• A valid passport
• An air ticket (a printout of an e-ticket is acceptable)
• Proof of residence (bank statement or utility bill) not older than three months

In South Africa, foreign exchange can be bought up to 60 days before travelling, but Reserve Bank regulations stipulate that any foreign currency remaining when you return to the country must be exchanged back into Rand within 30 days of your return.

Travelling with cheques

Travellers’ cheques may be yesterday’s news, but they still have their place, according to some corporate travellers.

“Whilst it is true that travellers’ cheques are on the decline, they are still quite popular when there is a requirement for large amounts to be taken offshore safely, says Andrew McDonic, Managing Director of American Express Foreign Exchange in South Africa.

If you need to go old school with your stash of dollars, remember these tips for keeping your cheques safe.

• Sign each cheque once as soon as you purchase it. Only countersign when you want to exchange it – don’t be tempted to save time by counter-signing them early.
• Write down the serial numbers and keep this list separate from the cheques. Leave a copy of the serial numbers with family at home.
• Look after traveller’s cheques as if they were cash – use hotel safes and don’t provide temptation for cleaning staff by leaving them lying around.
• Make a note of the phone number for your cheque issuer, so you can easily call them if your cheques are lost/stolen.
• Keep the copy of the cheque purchase form separate from your cheques.