The weakness of the pound against the euro has concentrated minds on how to get the best exchange rate. Tom Otley looks at the options for business travellers' foreign currency needs.
It’s difficult to get excited about foreign exchange. Show someone a method of saving money on a hotel room or plane seat, and they listen. Tell them they can get a slightly more favourable exchange rate, and the attitude is likely to fall short of excitement. Common sense tells us that, in the volume we order and use currency, any savings will be small, and since it all goes through on expenses anyway there are more pressing concerns when planning a trip.
Yet this is quite the wrong attitude – for a company with more than a handful of travellers, the amounts can quickly add up. Not only is the company unable to take advantage of the more competitive corporate rates it could obtain with the volume which would come with the collective purchases of its travellers, it is also losing the ability to capture much of this spend in a way that allows it to understand fully its travel and expenditure outlay.
Helen Grace, vice-president of global foreign exchange services for EMEA at Amex, says: “Foreign exchange represents between five and ten per cent of a company’s travel and expenses [T&E] spend, but it gets disguised once it’s been through a card product [ie put on a credit card, either corporate or personal] or an accounting system and it comes out simply as a restaurant spend, taxis, hotels, or entertainment. We’ve seen that the average foreign exchange order for Amex corporate foreign exchange is £150, so they are not insignificant amounts.”
The astonishing fact is how few companies actually mandate for their employees to use a particular method of obtaining foreign exchange. Jonathan Bennet, head of corporate outsourcing at Travelex, says: “Research shows that only 9 per cent of UK businesses are mandating how people get their foreign corporate exchange before travelling.”
Helen Grace of Amex confirms this. “It is surprising that quite a large proportion of companies still act in this way,” she says. “I think it’s down to their perception of risk and liability and perhaps some concerns over the administration burden, so they tend to bypass looking at the foreign exchange control with the same rigour that they do the rest of the T&E process.”
For the individual business traveller, this haphazard approach is also not good. By using cashpoint machines when abroad or simply walking up to a high street or airport exchange bureau, you are opening your own account up to the possibility of fraud. In research published by Travelex, almost a third (32 per cent) of business travellers think their employers are not in control of their foreign exchange expenditure.
The study found that 62 per cent of business travellers currently manage their own foreign exchange risk by using personal funds abroad and then reclaiming expenses in their home currency, with just a fifth having their foreign cash provided by their employer. Not only does this mean that British businesses are not controlling their overseas expenditure, but that employees are actually providing cashflow to their companies.
So how should you go about getting your foreign exchange? Well, leaving it until the last moment is probably the worst option. Even with a well-known brand such as Travelex, rates will vary, as the figures above demonstrate. They were collected by three travellers who all made the same transaction (sterling into euros) with the same provider (Travelex), on the same afternoon, airside at three different UK airports. You might think that the rates offered would be standard, yet they were all very different, offering a spread, from this one provider alone of over 3.7 per cent.
So why the difference? Well, there are some obvious factors. In general the best rate is to be found on the web for pre-orders. The reason for this is twofold. Firstly, it removes the cost of a high street or airport boutique, and secondly, all foreign exchange providers are in competition, and on the web this competition is fierce.
At an airport, however, competition is not fierce, and the smaller the airport, the less competition there is (perhaps the reason the Luton boutique offered the least competitive rate of the three, with Heathrow offering the best). So if you want a good rate, stay away from the airport, or order it online, and pick it up from the airport, taking advantage of the best rates of the internet, and the convenience of the airport.
In this particular case, Travelex confirmed that it did not have “…a uniform pricing policy across its locations and therefore the rates and commissions can vary between airports owing to the different operational costs that this service demands.”
In addition, it pointed out that the prices offered would “differ across its locations owing to the various customer promotions that it runs”, and that “…anyone seeking the very best deal on their travel money should take advantage of the Travelex Price Promise which guarantees the best price foreign currency, commission free.”
According to Travelex, the answer is for companies to centralise foreign exchange operations and regain control of employees’ travel disbursements. Jonathan Bennett says: “In London we have a free delivery of foreign exchange for our corporate customers, so if you book your corporate travel before 11am online, cash can be picked up at any UK airport or delivered direct to the corporate office in advance of the trip, and of course we can pick up any cash you haven’t spent from a previous trip.”
American Express offers similar benefits. For larger corporate accounts it sets up a foreign exchange account so that the company will get special rates and additional services such as the “business house lounge buy-back scheme”. This recognises that, for frequent business travellers, the different buy and sell rates make things complicated for filling in expenses forms. Instead, the scheme ensures that the individual gets charged the same rate for both buying and selling, and a separate back-office process takes care of the accounting, with the difference in the rate being charged to the company’s account so that the employee doesn’t have to account for it.
American Express also has the advantage of access to some 110 currencies through its wholly-owned wholesaler, one of the top five currency wholesalers in the world with a turnover of US$45 billion. Delivery is guaranteed by Royal Mail secure delivery or can be collected at one of Amex’s airport locations (it has recently sold off its high-street branches in the UK).
And then, of course, there’s the advantage of being able to order currency using the American Express Corporate card, with Amex investing in the billing technology to produce a descriptive bill showing the local currency, the local amount, the foreign amount and the exchange rate applied, all of which is useful to both the traveller and his or her accounting department.
Don’t assume that online is the best rate for every transaction, however. TTT Moneycorp has branches at Gatwick and Stansted airports as well as several central London locations (all detailed on its website). In contrast to Travelex, the rate offered on the website is not the best available from the company. Instead, you get a better rate by walking into one of the central London properties. The reason, according to Dominic Mesiti, business development manager, is that “the rate offered online has to include the extra cost of having a boutique at a BAA retail location [ie at the airport]”.
In addition, the company doesn’t do delivery of currency because of the risks of fraud. “To get the best rate we offer, you can either use one of our central London locations or join our loyalty club,” says Mesiti. “That way you can order your currency online, pick it up at the airport and still get the best rate we offer, a rate consistent with that offered in our central London locations.”
There are currently 40,000 members of this scheme, though admission to the club isn’t quite as simple as joining the frequent flyer programme of an airline or hotel chain. Your application includes an Experian credit check, but for travellers who need regular amounts of foreign exchange, including those with a second property or holiday home abroad, it’s clearly worth considering. Members can also access the more favourable rate mentioned above at airport branches of competitors such as American Express and International Currency Exchange. (To enrol in the scheme, visit moneycorp.com/privilegeapits.)
International Currency Exchange’s head of marketing, Andrew Harrison, confirms the cost of buying your currency at the airport. “Bureaus have such large overheads that they apply a larger margin.”
ICE has outlets at Heathrow, Luton, Edinburgh and Glasgow airports, as well as over 300 locations in 19 countries on four continents, and conducts one transaction every six seconds, but Harrison advises ordering online to get the best rate.
“If you order before 3pm we guarantee next-day delivery for £4.95,” he says. “It allows us to streamline our operation, and we simply send the money to you in the post. It’s a volume business and that allows us to pass the savings onto the customer without having to levy the costs we incur with a boutique.”
Despite the number of travellers using airport boutiques, Harrison admits: “They are very expensive, and generally we regard airport purchases as distress purchases. The earlier you purchase, normally the better off you are. Our average transactions are £700-£800 rather than the smaller denomination transactions that you get at those outlets.”
For more details, visit ttt.co.uk, travelex.com, americanexpress.com, iceplc.com.
Ordering foreign exchange
- Order online. You get the best rates, and can either pick up the currency from a high street branch close to you, have it posted to you or, in the case of Travelex, collect the currency at the airport.
- Set up a corporate account if possible. There are added benefits, such as having the currency delivered to you at a reduced or not extra cost.
- Register with your chosen provider. They may conduct a credit check on you, but it will then speed the process of ordering your currency and minimise problems of fraud.
- Consider using a pre-paid currency card. It reduces risk in case of loss and theft, and is easily rolled out across a company.
