Will currency suppliers survive the Travel restrictions?

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This is a worrying time for all types of businesses that have been forced to shut their doors and effectively shut out trade. One sector that’s been badly affected is the UK’s Travel money industry. COVID-19 is becoming a perfect storm for all firms dealing in travel money. The travel restrictions have reduced the demand for travel money to near zero. In addition, travel restrictions have disrupted the repatriation of bulk foreign currency. Wholesalers have stopped buying currency from their bureau de change customers. Travel money firms are sitting on a mountain of foreign currency stock. And Bureaux de change are excluded from the list of retail shops eligible for the COVID-19 business rates relief.

It’s also unhelpful to the industry that people are being advised to use contactless payments instead of cash to reduce the risk of COVID-19 transmission. The spectre of the cashless society has been haunting the travel money industry for years. The current new wave of internet bank accounts, multi-currency cards and apps have been called the Uber of the travel money industry, eating away market share from the traditional high street foreign exchange brands. Except that in this analogy it won’t be Uber whose license is at risk it’s the black cabs. It could be the case that Travel money firms will need to reinvent themselves for a post-COVID 19 world, where less people travel and cashless payments become the new normal.

Currency expert and CEO of independent foreign exchange companies Manor FX and Leftover Currency Mario Van Poppel, gives his thoughts on how the Bureaux de Change of the future may look:

Cashless-first

Remember when mobile phones didn’t have a browser? Unless you had a BlackBerry, until 2007 mobile phones were for sending text, making calls and playing Snake. Fast forward to 2017 and 50.3% of web traffic worldwide was accessed via mobile phones. Adopting a cashless-first approach would be a logical thing to do. Many countries are promoting the cashless society and if that were to continue It would mean big changes to the business model of all high street travel money brands. It won’t be enough to simply sell prepaid travel money cards. Cashless-first will move away from debit and credit cards, onto apps and wearables.

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Setting up a cashless-first travel money solution is likely the way to go for the big travel money brands on the high street, but this may not be realistic for many of the smaller players in the travel money industry. Like your typical bureau de change in Edgware Road, without a cashless solution in place, smaller travel money firms will need a solid strategy to win over a share of the shrinking and crowded market for physical travel money.

Competing on price and offering competitive exchange rates remains a reliable way to attract business. During the COVID-19 crisis it was possible for consumers to buy Euro and US Dollar banknotes below the interbank exchange rate. Such was the desperate need for travel money businesses to sell their stock. Before COVID-19, the spread between Buy and Sell rates in the UK was much higher than in other parts of the world. It’s likely that this will change and that margins for bureaux de change will decrease. To compete on price, travel money firms will need to lower costs.

Extra services

Travel money firms are going to have to provide more services than just travel money. Many have already started with offering international money transfers. Other ways to diversify and increase footfall and web traffic include providing postal services, bill paying services, forex trading and crypto exchange.

There may be a way for high street brands to steal away customers from the online banks. The online-only players depend on an infrastructure that isn’t their own, for cash to be paid into their customers’ accounts. If high street travel money firms were to offer a paying in service it would make them the first port of call.

Added Value

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Providing added value to customers can be a way to create brand loyalty. Traditionally this would be the likes of Nectar points and air miles. However with cashless travel money there is a potential for groundbreaking added value partnerships, providing customers with extra spending money or cash backs. For example a travel money firm could partner up with an amusement park like Disneyland and offer their customers a €1 cash back on every €20 spent in Disneyland.

Cash as a luxury item: It could work if travel money firms were to offer fresh, crisp, uncirculated bundles of banknotes, sold at a premium. Currency collectors and  numismatists are another group of customers who are willing to pay a premium for mint banknotes, especially for newly released ones. The travel restrictions and worldwide cancellation of numismatic trade fairs have made it difficult for collectors to source new banknotes. Travel money firms could do what the Royal Mint did and enter the collectables market, where profit margins are higher.

Tourist traps

Is there a future for bureaux de change on airports and tourist hot spots? It’s likely there will be fewer of these bureaux, but some will remain. They will depend on impulse buying tourists not understanding or comparing the exchange rates, as they do today. Tourist traps are here to stay.

Automate it

Travel money firms may replace some of their branches with multi currency ATMs. Automated foreign exchange kiosks have already been rolled out to some London Underground stations and supermarkets. It’s likely that the share of automated transactions will increase, both for the buying and selling of foreign currency. Bricks and mortar bureau de change with cashier staff won’t disappear, but their numbers will decrease, similar to the closure of many bank branches in the UK.

Exotics

With 140 out of 180 currencies, Card provider Revolut pretty much covers all tourist currencies in the world. The few  that aren’t covered are mainly currencies of countries that aren’t safe to travel to. However, Revolut depends on the payment infrastructure in the destination countries, and on the ability of vendors to accept international chip-and-pin card payments. This isn’t always the case when you travel off the beaten track. This could apply to all types of currency cards.

Large parts of the world have a significant cash-based economy, where travellers will need cash for local markets, taxis and public transport. A number of travel money firms have settled in the niche of exotic currencies. Take for example Manor FX, where the three first countries in the alphabetical list of available currencies are Albania, Algeria and Angola.

Buy-back

By offering a buy-back service for physical cash, travel money firms can differentiate themselves from online-only players. Some firms have made Buy-back their main product, even expanding it to buying foreign coins and out-of-circulation banknotes. This is the business model of Leftover Currency, where customers can cash in their old banknotes and leftover foreign coins.

Subscription based

Subscription based business models may become more widely adopted among travel money firms. Not unlike Amazon Prime, having customers pay a monthly or yearly subscription fee creates customer loyalty and generates a reliable source of income. Customers who pay the subscription fee have access to more competitive exchange rates.

Eventually the demand for travel money will surpass the 2019 levels, albeit possibly, in a more cashless form. But until then, to cope with lower demand in a crowded market, travel money professionals may need to look ahead and reinvent the travel money industry for a world after COVID-19.

Posted by MVanPoppel

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Running leftovercurrency.com, accepting expired banknotes and spare coins for exchange

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