Travel Cards are Now In a Three-Way Competition

  As use and acceptance of credit and debit cards has grown around the world, travelers have less need for travelers checks than they did back when Carl Malden sternly warned, "Don't leave home without them." But travel-related payment vehicles still appear to be marketable.
  MasterCard International announced in November its launch of a stored-value travel card program in North America to compete with those of American Express and Visa. MasterCard's move indicates that the card networks, at least, sniff continued opportunity in prepaid travel.
  Depending on whom you ask, the benefits for financial institutions and other distributors of prepaid travel cards range from modest profit to simply having products on hand so customers who might want them will not have to buy them through a competitor.
  Visa launched the first electronic prepaid travel card, TravelMoney, in 1996. Initially, the cardholder could only access funds with a personal identification number through a Visa or Plus network ATM. Visa added signature-based purchase functionality to the card in 2004, increasing its acceptance to anywhere Visa debit and credit cards are accepted.
  Travel-related services tied to TravelMoney include replacement of lost or stolen cards within 24 hours, the ability for two cards embossed with different numbers to tap the same prepaid account, luggage insurance, purchase protection, and translators on call to help while cardholders are abroad. Card fees vary by issuer. Visa would not say how many issuers and distributing banks offer TravelMoney cards.
  American Express launched its TravelFunds card as a complement to its Travelers Cheques in 2003. The cards could only be purchased online until 2004, when AmEx expanded distribution to bank partners. The cards can be used at millions of merchant locations and at 550,000 ATMs worldwide where other AmEx payment cards are accepted. AmEx changed the name to the Travelers Cheque Card in early 2005 to capitalize on the name recognition of its checks.
  AmEx's Travelers Cheques and Cheque Cards offer the same benefits, including replacement within 24 hours, and passport and credit card replacement assistance. AmEx also added new features this year including the ability to allow more than one person to reload the cards.
  The Travelers Cheque Card costs $14.95 initially and $5 per reload. Banks and others who distribute the cards earn revenue from these fees, along with commissions on the amount loaded. AmEx claims that 45 of the top 145 U.S. banks sell its travel card alongside its travelers checks, including Citibank, Fifth Third Bank and BB&T.
  Both AmEx and Visa say that because prepaid travel cards are not linked to cardholders' other accounts, they help protect against identity theft and account fraud. But they pitch them as complements to credit, debit and other tenders, advising consumers to carry a diverse wallet when they travel.
  "We don't view prepaid cards as a replacement for other forms of plastic payment vehicles, but for cash," says Val Soranno Keating, head of AmEx prepaid services. She says 15 million customers use AmEx Traveler Cheques, which generate $20 billion in sales worldwide.
  Karen Hyun, product director at Visa USA's prepaid division, concurs that the competition is paper, not other plastic tenders. She views Visa's prepaid travel card as competition to travelers checks, not just cash.
  Paper to Plastic
  "What we're seeing is that the TravelMoney Card is a direct substitute for travelers checks," she says. "A vast majority of customers walk in thinking they need travelers checks, but when they hear about the benefits, they decide to convert to the TravelMoney Card."
  Now comes MasterCard, announcing the launch of its card in North America. The company already has a travel card deployed in Europe.
  "We're excited about the travel card market," says Scott Galit, MasterCard senior vice president of global prepaid product development. "Something that gets us excited is the acceptance proposition. We have more ATMs than anyone else does on a global basis. We have over 20 million point-of-sale locations."
  MasterCard's card rollout will start early this year in collaboration with Travelex, a London-based foreign exchange services provider. Storm Lake, Iowa-based MetaBank will issue the cards, and agent banks that issue and distribute other MasterCard products will sell them.
  MasterCard will oversee the program, its promotion and management. Travelex's roles will include delivering card supplies to financial institutions, transaction settlement and some customer-service management. The card, which MasterCard had yet to name, will include traveler's assistance such as emergency cash and lost-luggage and purchase protection.
  Neither Visa nor AmEx would disclose the number of their prepaid travel cards issued or how much money has passed through those cards. Nor would anyone else in the payments chain. That, of course, makes tough work for analysts trying to track their popularity.
  Indeed, estimates of the current state and predicted growth of prepaid travel cards differ widely. Tim Sloane, an analyst at Mercator Group, estimates that 986,000 cards will be issued in 2005 and that the number will increase at a compound annual growth rate of 9.1% to 1.28 million cards by 2008.
  MasterCard expects a healthy market to come. In a study conducted for the card association, Boston Consulting Group projects the North America travel card market to grow to $7.5 billion in gross dollar volume by 2010, Galit says.
  But Sloane maintains a more-conservative forecast of $525 million in spending on North American-issued travel cards by 2008. "That's partly because of the difficulty the associations and Travelex have in getting the banks to promote the cards," he says. "They get them into the branches, but [the branches] rarely put substantial efforts into marketing the cards." Because the banks are only selling agents, and not issuers, their profits from the cards are thin, Sloane says.
  Growth Projection
  John Gould, formerly an analyst with MasterCard's TowerGroup, would not hazard a guess how many prepaid travel cards are in circulation, mostly because card networks and issuers do not disclose their numbers. "I haven't seen a number that I would quote, and if anybody quoted a number, I would challenge it," says Gould, now general manager of Prepaid Advisors, the consulting division of Nashua, N.H.-based Prepaid Services Group.
  When pressed, Gould says growth of prepaid travel cards may reach 20% annually, but only at the expense of traveler's checks, not other tender types. "The overall challenge is this is a shrinking industry," he says. "As paper is going away, can travel cards grow as a market when they are competing head-to-head with credit and debit cards, which can be used all over the world?"
  Gould sees opportunity for travel cards beyond vacations, such as parents giving them to kids when they head off to college to use as reloadable money cards.
  And he believes financial institutions can offer the cards to customers with a minimum of hassle if they let third parties do most of the heavy lifting. "If I were a bank, I would partner either with AmEx or Travelex," he says. "I wouldn't do it myself."
  That is because AmEx has spent years perfecting product distribution using such channels as banks, travel agencies and organizations like the American Association of Retired Persons, which offers its members a cobranded AARP American Express Travelers Cheque Card.
  Visa partners with the American Automobile Association to offer the card to AAA members. And in February, Travelex inked a deal with the American Bankers Association to provide all of the services needed for easy distribution of Visa TravelMoney through ABA member financial institutions.
  Support Needs
  One reason many banks choose to let companies such as Travelex handle most of their travel card matters instead of building services in-house is that travel cards require more complex customer support than do other prepaid gift cards, says Tom Tucker, senior vice president and head of sales at Travelex Americas' Business Services Division. The operation has North American offices in Toronto, Garden City, N.Y., and Omaha, Neb.
  "How are you going to support your traveler when he calls and says, 'I've been mugged. I've got my family. I've lost my wallet. I don't have a passport,'" Tucker says. "This isn't a program where Johnny got a $25 gift card from Grandma and lost it."
  WildCard Systems, now owned by eFunds Corp., provides various processing and customer-service packages to some 20 issuers of Visa TravelMoney cards around the world, including Travelex. The other issuers are direct clients of WildCard, which provides issuers with customer-service employees who answer cardholder phone calls. They speak English, Spanish and Portuguese, and can tap language support lines of Visa or AT&T for additional translation help.
  "They have a high degree of knowledge about these cards-how they work and what can go wrong," says Gary Palmer, WildCard chief operating officer.
  Whether financial institutions sell travel cards as their own issuers or as distribution agents for AmEx, Travelex or larger banks such as National City, they need to train staff to ensure customers understand the costs, benefits and best ways to load and use the cards before they travel.
  Palmer says banks can counter adverse messages about card fees by making sure potential customers understand the services offered to travel cardholders and the comparisons with fees charged to exchange cash and paper checks for foreign currency abroad, which he says are higher than exchange fees on the cards.
  Prepaid travel cards have not been big money makers for distributing banks. Regardless, institutions should offer them if customers demand them, industry insiders agree. "What the banks have to learn is you have to look at the lifetime value of a customer," Gould says. "It's important to have as many products in your arsenal as possible."
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