How do multi-currency prepaid cards work and how are they regulated?

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Multicurrency accounts are the next step in the evolution of holiday money. The accounts come with cards that, once you’ve got back from holiday, you can carry on using at home or in another currency.

They allow you to make purchases in pounds as well as one or more extra currency in another country. They are typically used by expats and migrant workers but have gained popularity amongst holiday makers in recent years.

Like regular holiday travel money cards they avoid the issues caused by using your regular debit card abroad.

British financial technology companies have spearheaded affordable multicurrency accounts like the international transfer giant TransferWise and prepaid banking accounts who offer them on top of their regular account for only a tiny increase in fees each month.

But if they’re so easy and cheap to set up, why aren’t all banks offering multi-currency accounts?

How do they work?

Whilst real multicurrency accounts exist, based offshore in places like Dominica and the Cayman Islands, the accounts your average holiday goer can access secretly aren’t multicurrency at all, but on the surface look identical.

The most accessible and cost-effective multicurrency accounts work much like regular travel money cards, but with intricate systems in place to make it seem like their multicurrency.

TransferWise is a good example, their accounts and international bank transfers are not done by actually transferring the same money from one country to another. They actually have their own bank accounts around the world, paying in different currencies on your behalf.

Here’s an example, you’re on holiday in Spain and you want to pay using the multicurrency card you applied for back home in the UK. At the point of purchase the card issuer will actually cover the costs using funds from their local bank account. At the same time, they will take money from your UK account and put it in their UK one.

Later on they balance the books between their multiple bank accounts, well after you’ve made your purchase. When you look at your mobile banking app or online account, it looks like any old regular purchase without any fees.

What are the exchange rates like?

You can get favourable rates using a multicurrency account. Using the real exchange rate, the one you’ll find from an independent source like Google, you avoid fees converting currencies and avoid the charges you face paying using your regular debit card abroad.

To make their money some charge monthly account maintenance fee, especially companies who offer services other than currency exchanges.

Other’s charge a flat rate fee of around £1-5 when you first swap currencies. Both charges still beat the banks and currency exchanges.

Who Regulates them?

Your account will be regulated by authorities of the country where it was issued, so your card issued in the UK is regulated by the Financial Conduct Authority (FCA).

The FCA regulates all banking activities in the UK, from the big banks right down to your prepaid travel card.

Since the 2008 financial crisis, all online accounts and cards are subject to the rules of the Electronic Money Regulations 2011, a document with explicit detail on how customer money should be safeguarded. It gives a thorough description of the FCA’s powers, they have the power to fine companies, take them to court and suspend their licence if they’re found breaking the regulations.

To add to that your purchases abroad, and any company’s local bank account, is subject to local regulators too, adding another layer of supervision and protection.

In the Eurozone, for example, the regulatory authority is the European Central Bank (ECB). Much like the FCA, they’ve changed their way of operating since the 2008-9 recession and have much stricter mechanisms in place to regulate the banks in their remit.

The Single Supervisory Mechanism (SSM) regulates all banking activities in Europe, giving the ECB the powers to allow and disallow banking licences and impose fines and restrictions on banks, so your card supplier is regulated wherever you are in the world.

Are they worth it?

Multicurrency account and card operators are regulated wherever they’ve got accounts. They implement extremely complex procedures behind a reassuringly user friendly interface, so it’s easy to see why they’re so attractive.

Anyone traveling between the two countries who’s happy using an online banking account or prepaid card would probably bite your had off for such an account if they’ve not already got one.

However, if your foreign spending is limited to during your annual holiday abroad and you’re not planning on using another card whilst you’re at home, you could save by opting for a regular, single-currency travel card.

They’re easier to use and avoid monthly for account which, if you forget about it, means you could run up a few bills between now and your next trip abroad. You’ve just got to decide which one suits you better.

It’s important to remember that the technology and regulations are changing quickly, so by the time you next go abroad a multicurrency card could have become the new norm for holiday spends.

Posted by Peter East

Peter East

Peter East is a professional content writer for Suits Me. He has training in BA Journalism and has an interest in political and data journalism. When not on the lookout for new stories he’s been developing a new podcast

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