Traveller's cheque
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A traveller's cheque[a] is a medium of exchange that can be used in place of hard currency. They can be denominated in one of a number of major world currencies and are preprinted, fixed-amount cheques designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.
They were generally used by people on vacation in foreign countries instead of cash, as many businesses used to accept traveller's cheques as currency. The incentive for merchants and other parties to accept them lies in the fact that as long as the original signature (which the buyer is supposed to place on the cheque in ink as soon as they receive the cheque) and the signature made at the time the cheque is used are the same, the cheque's issuer will unconditionally guarantee payment of the face amount even if the cheque was fraudulently issued, stolen, or lost. This means that a traveller's cheque can never 'bounce' unless the issuer goes bankrupt or out of business. If a traveller's cheque were lost or stolen, it could be replaced by the issuing financial institution.
The financial institutions issuing traveller's cheques earn income in a number of ways. Firstly, they charge a fee on sale of such cheques. In addition, they can earn interest for the period that the cheques are uncashed, while not paying any interest to the cheque holder, making them effectively interest-free loans. Also, the
Their use has been in decline since the 1990s, when a variety of more convenient alternatives, such as
Terminology
Legally, the parties to traveller's cheque transactions are as follows. The organization that produces a traveller's cheque is the obligor or issuer. The bank or other place that sells it is the agent of the issuer. The natural person who buys the cheque is the purchaser. The entity to whom the purchaser hands the cheque in payment for goods or services is the payee or merchant. For purposes of clearance, the obligor is both maker and drawee.
History
Traveller's cheques were first issued on 1 January 1772 by the London Credit Exchange Company for use in 90 European cities,[1] and in 1874, Thomas Cook was issuing "circular notes" that operated in the manner of traveller's cheques.[2]
American Express developed a large-scale international traveller's cheque system in 1891, to supersede the traditional letters of credit.[3] It is still the largest issuer of traveller's cheques today by volume. American Express's introduction of traveller's cheques is traditionally attributed to employee Marcellus Flemming Berry, after company president J. C. Fargo had problems in smaller European cities obtaining funds with a letter of credit.
Between the 1850s and the 1990s, traveller's cheques became one of the main ways that people took money on vacation for use in foreign countries without the risks associated with carrying large amounts of cash.
Several brands of traveller's cheques have been marketed; the most familiar of those were Thomas Cook Group, Bank of America and American Express.
Declining use
The convenience and wider acceptance of such alternatives as
Since traveller's cheques do not earn interest, one of the main incentives financial institutions have to sell traveller's cheques is that they effectively represent an interest-free loan from the purchaser to the seller. The sustained decline in interest rates in most of the developed world since the early-to-mid 1990s has substantially reduced the profitability of traveller's cheques for their issuers. Financial institutions have responded to this development by charging new fees for traveller's cheques, increasing existing fees, or by exiting the business altogether.[citation needed]
Usage
Purchasing cheques for later use
Travellers' cheques are sold by banks and agencies to customers for use at a later time. Upon obtaining custody of a purchased supply of traveller's cheques, the purchaser immediately signs each cheque. The purchaser also receives a receipt and other documentation that should be kept in a safe place other than where they carry the cheques. Traveller's cheques can usually be replaced if lost or stolen, assuming the owner still has the receipt issued with the purchase of the cheques showing the serial numbers allocated.
Cashing cheques
To cash a traveller's cheque to make a purchase, the purchaser would, in the presence of the payee, date and countersign the cheque in the indicated space.[4]
Denomination and change
Traveller's cheques are available in several currencies such as
Any change for a purchase transaction would be given in the local currency.
Deposit and settlement
A payee receiving a traveller's cheque would follow its normal procedures for depositing cheques into its bank account: usually, endorsement by stamp or signature and listing the cheque and its amount on the deposit slip. The bank account will be credited with the amount of the cheque as with any other negotiable item submitted for clearance.
In the United States, if the payee is equipped to process cheques electronically at point of sale (see: Check 21 Act), they would still take custody of the cheque and submit it to a financial institution, particularly to avoid any confusion on the part of the purchaser.
Security issues
One of the main advantages traveller's cheques provide is the replacement if lost or stolen.
However, this feature has also created a black market where fraudsters buy traveller's cheques, sell them at 50% of their value to other people (such as travellers) and falsely report their traveller's cheque stolen with the company from which the cheque was obtained. As such, the fraudster gets back the value of the traveller's cheque and also makes 50% of the value as profit.[5]
The widespread problem of counterfeit traveller's cheques has caused a number of businesses to no longer accept them or to impose stringent safeguards when they are used. It is a reasonable security procedure for the payee to ask to inspect the purchaser's
Some purchasers have found the process of filing a claim for lost or stolen cheques is cumbersome, and have been left without recourse after their cheques were lost or stolen.[6]
Alternatives
The widespread acceptance of credit cards and debit cards around the world starting in the 1980s and 1990s significantly replaced the use of traveller's cheques for paying for things on vacation.
In 2005, American Express released the American Express Travelers Cheque Card, a
See also
References
- ^ Alternatively spelt as traveler's check, particularly in American English. See also American and British English spelling differences.
- ^ "On this day – January 3". thisislancashire.co.uk. Archived from the original on October 15, 2008.
- ^ "Home" (PDF). competition-commission.gov.uk. Competition Commission. Archived from the original (PDF) on 2012-01-06. Retrieved 2014-03-23.
- ^ "Host with the Most". Time. 9 April 1956. Archived from the original on March 3, 2007.
- ^ "Accepting American Express Travelers Cheques – watch out for fraud". American Express. Retrieved July 17, 2012.
- ^ Handboek voor de kWereldreiziger by Frans Timmerhuis
- ^ "Top 31 Complaints and Reviews about American Express Traveller's Cheques". Consumeraffairs.com. Retrieved 2014-03-23.
- ^ "Visa TravelMoney Cards". europeforvisitors.com. Retrieved January 3, 2011.