King Cash and the Plastic Prince

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Have spending habits on the African continent changed? Does cash remain ‘king’? Regardless of your opinion, few will deny that the continent’s business travel industry has evolved, and with that has come a host of developments in the foreign exchange card space, all of which have made travel payments and the resulting reconciliation process a lot more seamless. Richard Holmes investigates.

In between getting from home to the airport to the hotel and the satellite office, getting the deal signed and sealed, and reversing the process to end up in one piece, perhaps the last thing most corporate travellers want to spend time and energy worrying about is how they’re going to pay for it all.

Yes, there are expense accounts and travel budgets to consider, but when it comes to the actual nitty gritty of picking up the bill for that crucial business dinner, or checking out of the hotel to rush for your flight, you don’t want to be quibbling about rands and cents… or naira, shillings or pula for that matter.

Fortunately, banks and specialist foreign exchange merchants have been only too happy to make life easier for corporate travellers heading into Africa, with a range of card and cash offerings to make foreign currency the least of your concerns when travelling abroad on business.

Perhaps the most notable advancements have been in the steady rise of card-based products in markets across Africa. While cash is still king on the continent, plastic is without doubt the prince waiting in the wings for his turn on the throne.

Credit cards have long been the fallback option for corporate travellers, with a simple swipe – or, increasingly, the punching in of a PIN code for a chip-enabled card – taking care of any and all business expenses. Swipe now, pay later.

But before you step on the plane, there are a few things you need to remember if you want to avoid being left up credit creek without a plastic paddle.

“Inform your financial institution before you travel so that spend outside your usual country of residence is not seen as suspicious, and ensure your credit line is sufficient to cover anticipated needs whilst travelling,” suggests Sugendgree Reddy, Standard Bank’s Head of Personal Markets. “If you are expecting to purchase more than usual, consider requesting a temporary credit limit increase, and if travelling for extended periods beyond your monthly repayment date, make arrangements to get your monthly payment taken by direct debit or other convenient channels such as Internet repayment.”

But just because you can count on Mastercard, Visa or AmEx in the shops of Victoria Island, it doesn’t mean they can be relied on in every nook and cranny Africa has to offer. While credit cards are becoming increasingly commonplace, there are large swathes of the continent where flashing your gold card won’t get you far.

“Credit cards are widely used, but clients need to understand the accessibility of cards in various countries and should also consider the cost of using the card and the exchange rate risk, whether you’re going to use it at a point-of-sale, or withdrawing cash from an ATM,” adds Bronwynne Rennie, Head of Retail International Banking for ABSA.

While point-of-sale purchases such as hotels and restaurants can sting you with currency conversion fees and fluctuating exchange rates, drawing cash off your credit card is an even more expensive option, with card operators charging a once-off fee in the region of $4.50, plus a conversion fee of around 2.5% of the transaction. And that applies each and every time you withdraw.

Credit cards “are a simple solution, but the rates charged and exchange rates used make them expensive,” says Andrew McDonic, Managing Director of American Express Foreign Exchange in South Africa. “In addition, you have no way of knowing what the rand cost of the purchase was until you return home and see it on your statement. The cost of this currency conversion will be in excess of 5%, as opposed to a charge of 2.5% which would be typically what you would have paid if you purchased forex in South Africa in any format. You also have no control over the rate, where again if you purchased in South Africa prior to departure, it is fixed.”

Credit card fraud is also “a massive problem and is growing annually. Credit cards that are signature-based are targeted by card-skimming syndicates as they are easy to clone and easy to then use fraudulently,” warns Craig MacFarlane, Head of Branch Banking Operations for Bidvest Bank.

So with credit cards flaunting their flaws, it’s no surprise that pre-paid currency cards have rapidly become one of the most cost-effective ways to carry foreign exchange abroad.

Pre-paid cards, offered by most major banks and foreign exchange merchants, are purchased before departure – usually for a nominal fee – and your chosen amount of currency is loaded onto it. Remember that a commission, usually in the region of 2%, is payable on the currency loaded to the card.

While transaction fees – usually in the region of £2 or $3 – apply to cash withdrawals, point-of-sale transactions are free of charge, so rather swipe your card than draw cash if you want to avoid fees eating into your per diems.

“The Cash Passports and pre-paid currency cards have replaced cheques and are the way to go,” agrees George Adams, Head of Retail for Travelex Foreign Exchange. “With a Cash Passport, you can manage your budget effectively as you lock in the exchange rate of all your travel expenses before your trip, and you won’t get any nasty surprises afterwards on your bank statement. When you purchase a card at Travelex, you can negotiate the exchange rate and commissions upfront, and you may qualify for discounts if you exchange amounts over the value of R5000.”

One downfall with most pre-paid currency cards is that the forex is purchased and loaded in a single currency, most commonly a choice between US dollars, British pounds, Australian Dollars or Euros. Depending on the dominant currency in your destination, travellers opt for the relevant card.

But what if you’re travelling between a number of countries – say through London and on to New York or Brussels – and don’t want the hassle of individual cards?

While currency cards can be used worldwide, the moment you transact in a currency that differs from that on your nominated card – say drawing Euros in Paris with a US Dollar card – further conversion fees apply. Once you add up the card fee, the commission on loading currency, transaction fees and then a conversion fee, the charges can all start to eat into your travel budget.

Absa’s pre-paid currency card, serviced by MasterCard, solves this problem by offering four currencies – US Dollars, Pound, Euro and Australian Dollars – stored on a single card that can be used for point-of-sale transactions and cash withdrawals.

“The other consideration with this card is the back-up service,” says Rennie. “If the card is lost or stolen, there are emergency services provided to the cardholder. We try and replace the card within 24 hours, we can send emergency cash up to the value on the lost card, and we can provide foreign language services to the client.”

Those back-up services are a key benefit of pre-paid cards, and all of the major pre-paid card offerings include a comprehensive policy of quickly replacing lost cards, and arranging money transfers for emergency cash if required.

Bidvest Bank also gets around the problem by issuing a spare card free of charge at the outset, so if the first card is lost or stolen it can easily be cancelled, allowing the client to continue their travels uninterrupted by withdrawing and transacting on the second card.

With pre-paid cards available in 18 currencies, Bidvest is one of the leaders in the field and a firm believer that plastic holds the key to the future for foreign exchange in Africa.

“Card spend and use in Africa is growing in leaps and bounds as technology allows for online real-time transactions at point of sale, and ATMS are always ‘up’ with cell phone technology,” says MacFarlane. “The other benefit of currency-specific pre-paid cards is, for example, the Euro card is easy to use in Francophone Africa and the US Dollar in other countries. But in reality, any currency card will work in any country. I recently used a Chinese Yuan Card in Malawi and an Argentinean Peso card in Botswana.”

Pre-paid cards are also ideal for travellers sent abroad on company business, as they allow the company to accurately control costs, and the staff member to avoid the hassle and expense of using personal funds and claiming for them later.

With the cards widely accepted throughout Africa, “the employer is able to pre-load the card with the budgeted travel expenditure amount,” says Adams. “The employer is also able to track and reconcile the expenses using the facility to check transactions online.”

It all sounds like a perfect solution, so let’s leave that pesky paper money at home and simply step on board the flight with a passport and a flush of plastic, right?

Sadly not, because in Africa the ‘how’ of foreign exchange largely comes down to the ‘where’. Certain countries are well linked to international banking systems, while others prefer cold, hard cash in hand.

“For more sophisticated environments in a country, and depending on accessibility, you’ll find cards will be readily used,” adds Rennie. “With our multi-currency card, we’ve seen a good uptake, and as our travellers become more acquainted with the countries they operate in, we’ll see a migration to the card product – that’s where our strategy is heading. But cash is still very relevant – we’ve seen our cash turnover increase 10% year on year.”

Popular currencies such as Botswana Pula, Mozambican Meticais and Tanzanian Shillings are readily available, but for certain destinations it can be difficult to acquire local currency before departure.

“Cash is still king for most of Africa,” says McDonic emphatically. “Dollars are best, but this again depends on which country it is. For example, in Mauritius or Botswana local currency would be best, but in a country like Nigeria, dollars would be best. Some of the more exotic currencies are hard to come by at forex merchants, and this is further complicated as some African currencies can only be purchased on arrival in their country.”

“Local currency is always good to have, but most African currencies are not traded much outside their own borders, so it’s not always possible to get it before you arrive,” adds MacFarlane. “The US Dollar is always recognised, and having a few one, five and 10 dollar bills will always help if you need to make a small purchase. Hundred dollar bills are accepted, but only the newer versions with the stronger anti-counterfeiting characteristics, and often merchants won’t have change for larger bills. Lastly, we know of instances where a money changer has taken a $100 bill, switched it for a counterfeit note, and then told the customer they couldn’t change the money, whilst handing back the swapped counterfeit.”

It certainly pays to be on high alert when sourcing or swapping foreign exchange on the road, and unless it’s absolutely necessary, corporate travellers would be well advised to source their overseas currency in their home country before departure.

“We would advise customers to purchase their currency in South Africa instead of waiting until they arrive at their destinations, since there is the risk that the exchange rates and commission will not be favourable, and they may not easily find a foreign exchange bureau or ATM,” notes Adams from Travelex. “Based on recent market research we have done, customers usually get more value in South Africa than at destination airports around the world.”

But you’re forgetting another dependable form of paper currency, I hear you complain. What about trusty old travellers’ cheques? Surely the watchful centurion of American Express is the gold standard for carrying large amounts of foreign currency on the road?

Well, unfortunately, not any more. Traveller’s cheques have by and large had their day with prohibitive fees making corporate travellers choose plastic or paper currency. Furthermore, a decreasing range of options for encashing the cheques is slowly hammering the final nail in the coffin of this long-trusted monetary instrument.

Yet, while travellers’ cheques are breathing their last breath, they’re not pushing up the daisies just yet.

“There are fewer and fewer locations to encash travellers cheques and the charges are high, which negates all the benefits that they used to have,” says McDonic, adding: “I think they can still be useful when used as a mechanism to deposit into an offshore bank account.”

“There are times when they could be useful,” suggests Rennie. “If you’ve got someone who’s travelling and staying in a particular hotel for a while, for instance. However, it’s important to make pre-arrangements for encashing.”

The instances where travellers’ cheques can justify their high fees are certainly few and far between, so corporate travellers looking for the right mix of ease, flexibility and security would be advised not to keep all their foreign currency eggs in one basket.

To be sure you’re never left out of pocket, “take a mixed-wallet approach to carrying travel money,” says Adams. “That is, a mixture of cash and cards.”

As a rule of thumb, opt for cash for incidental purchases and card for the big ticket items that might require a degree of accounting oversight and expense reconciliation.

“Over the last 10 years, the developments in card and mobile across the continent have been phenomenal, and it is increasingly hard to find a travel and entertainment merchant that won’t accept cards,” says Reddy. “Cashless business travel across the continent can already be a reality, and we are certainly seeing increased adoption of cards – corporate, credit, debit and pre-paid over cash.”

As with so many elements of the travel industry, Africa is seen as the next big frontier for foreign exchange innovation, and with economies on the continent growing at close to double figures, there is plenty of scope for foreign exchange companies and retail banks to cash in.

Notes about notes

South African citizens have to abide by a strict set of rules laid down by the Financial Intelligence Centre Act (FICA), before they can purchase foreign exchange. Exchange control rules are strictly applied, and before you can purchase foreign currency from a bank or specialist foreign exchange bureau, you’ll need to provide:

  • A valid passport
  • An air ticket (e-tickets are acceptable)
  • Proof of residence in the form of a bank statement or utility bill that is not older than three months

Remember that these rules still apply when purchasing foreign currency at international airports, even after customs and passport control. While you’ll have your passport and air ticket handy, without that crucial proof of address you won’t be able to purchase foreign exchange.

Also remember that within the borders of South Africa, you can only buy foreign exchange up to 60 days before departure, and Reserve Bank regulations require you to convert any unused foreign exchange back into Rands within 30 days of your return to South Africa.