If you’re a regular international traveler or just planning a single trip out of the country, there's one problem you know you must solve: money. Most countries don’t want your American dollars, so you have to get your hands on some local currency to do your shopping.
As the economic markets aren’t always simple to navigate, one dollar usually doesn’t equal one of any other type of currency because the exchange rate depends on a host of factors over which you have no control. You probably don't want to spend a lot of time trying to do the math while you're traveling abroad.
That’s what companies such as Travelex are banking on—literally. There are cheaper ways of exchanging your money than Travelex, but few are as convenient. And, as with most purchases, convenience comes with a cost.
What Is Travelex?
Travelex is the world’s leading foreign-exchange business, according to its website. The company exchanges currency for 40 million customers each year—about 5,000 every hour. It has more than 1,000 stores and 1,000 ATMs in 26 countries. You probably know Travelex best as the kiosk you see in some larger airports, seaports, rail stations, and other tourist locations.
- When traveling abroad, you will likely want to convert some of your dollars into the local currency.
- Travelex is a convenient way to exchange one currency for another.
- The main way Travelex makes profits is on the spread, or the difference between buy and sell rates of currencies.
- Credit cards are also handy when shopping overseas and carrying plastic is typically safer than carrying large amounts of cash.
- It pays to shop around when exchanging large amounts of money, but when the amounts are small, convenience is the more important factor.
More than 40% of the world’s travelers—that’s approximately 2.7 billion passengers annually—pass through airports with at least one Travelex location. If you’re looking for a well-known, reputable brand for exchanging your money, Travelex is a reasonable choice.
How Travelex Makes Money
The company’s main business model is the same as any currency-exchange company. That is, the company makes money on the markup or spread, which is the difference between the buy and sell rates on currencies. Matt Richardson is owner of FX brokerage firm betterFX and a former Travelex employee for 13 years. He explains,
"The main way Travelex makes money is indeed on the foreign-exchange spread (the difference between the customer buy rates and sell rates and the wholesale bank-note market rates). Margins are often over 10%, with spreads as high as 26%, so in branches with decent volumes, it is a highly profitable business model."
During his time at Travelex, Richardson and his fellow agents were given incentives to sell costumers additional, often more expensive, products. “Tellers could earn incentives for encouraging clients to change larger sums,” he says. In addition, “Each teller would be measured for their average transaction size. Incentives were in place for selling the buy-back guarantee, selling Cash Passport, travel insurance, prepaid phone cards, overseas sims, etc.”
Travelex Convenience Costs
It’s easy to see that Travelex is profiting from the convenience of exchanging your money as soon as you get off the plane—and it is—but it’s more than that. According to Richardson,
"Very often it is because they operate in a very high-cost location, such as airports and premium retail locations. Airport locations can be open 20 hours a day or more, including weekends and public holidays, so staff costs and other overheads are high, too. They also have a strong international brand—with over 1,500 branches all over the world—and believe that allows them to charge more as (somewhat ironically) travelers feel it is a name they know and trust. Not all their branches have the same rates, so it’s worth comparing a downtown branch with the airport one."
Richardson is right. Many airports don’t have set monthly lease rates the way retail locations in a mall do. Anybody wishing to do business with the airport has to bid on the highly valuable space.
Travelex doesn’t just operate in airports and other travel hubs; you can find retail locations in other places as well. According to Richardson, it is often better to do business away from airports, though not always. Again, because of the convenience and high overhead of the airport, prices tend to be higher there. And he has another piece of advice, “Travelex also has an online ordering service that allows you to collect from the airport and usually offers better rates than a walk-up service—sometimes by 10% or more.”
Online Is Usually Better
Judging by Travelex’s website, it wants you to exchange your currency online, but is that a better deal? In many cases, it makes sense because an online company doesn’t have all the overhead costs of a brick-and-mortar location. There’s another reason Travelex wants you to do more business online. According to Richardson,
"Online allows Travelex to have a more interactive relationship with their clients and build loyalty and repeat business. A customer who walks up to a location in a travel hub and changes money is a transient interaction with the firm. Online means collecting email details and then being able to data mine client activity, market to those clients in the future, and so on. Margins are lower online, but costs are lower, too, so net margins are probably more or less the same. What’s important is that the long-term value of each client is higher. The other problem with the bureaus in airports is that the contracts with the airport company are usually for three, five, or seven years and could go to a competitor at the retender stage, which would mean an instant loss of all that business. Their online transactions cannot be lost overnight in this way."
Cash Passport Card Option
What if you could put your foreign currency on a debit card and have it with you whenever you’re traveling? Even better, what if you ran out of a certain country’s currency but had another currency on the card, and it was automatically exchanged to what you need at that time? The Cash Passport card from Travelex does just that, but is it worth it?
Much like a prepaid card, you can only spend what’s on the card, so you can better control your budget. However, the multiple fees are a big drawback. There’s the initial currency exchange fee, a withdrawal fee, possibly an inactivity fee, and if you choose to convert back to dollars and cash out of the card, there’s a fee for that too. According to Richardson, if you put $1,000 on the card, converted it to British pounds, and then cashed it out later, you could pay nearly 14% in fees.
Best Way to Exchange Currency
“Generally speaking, buying currency from the airport or other travel hubs is the most expensive way of buying or selling foreign currency," according to Richardson. You might want to look at online alternatives or apps like Revolut, which can usually offer better rates.
A credit card is typically a cheaper way to get funds in a foreign country. The credit card is also safer than carrying a lot of cash around. Richardson offers another suggestion,
"If you do need to take a larger amount of cash and think that you may come back with a chunk unused, take out a buy-back guarantee, which, for a fee of a few dollars, allows you to convert leftover currency at the original sell rate rather than the buy rate. This can save you as much as 25% or more by avoiding the hit of the spread."
The Bottom Line
Remember the value of your time. “Bigger brands are often the most expensive but, equally, driving an hour away to save a few dollars may not really make sense," according to Richardson. Convenience is the most important thing when changing small amounts. But beyond that, it often pays to shop around.