traveler's check

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A traveler's cheque (also traveller's cheque, travellers cheque, traveller's check or traveler's check) is a preprinted, fixed-amount cheque 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 instead of cash as many businesses used to accept traveller's cheques as currency. Their use has been declining since the 1990s as better alternatives, such as credit cards became more available.

Terminology

Legal terms for the parties to a traveler's cheque are the obligor or issuer, the organization that produces it; the agent, the bank or other place that sells it; the purchaser, the natural person who buys it, and the payee, the entity to whom the purchaser writes the cheque for goods and/or services. For purposes of clearance, the obligor is both maker and drawee.

History

Traveler's cheques were first issued on 1 January 1772 by the London Credit Exchange Company for use in ninety European cities,^[1] and in 1874 Thomas Cook was issuing 'circular notes' that operated in the manner of traveler's cheques.^[2]

American Express was the first company to develop a large-scale traveller's cheque system in 1891,^[3] and is still the largest issuer of traveler's cheques today by volume. American Express's introduction of traveler'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 1950s and the 1990s travelers 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 amount cash.

Several brands of travelers cheques have been marketed; the most familiar are those were Thomas Cook Group and American Express.

Declining use

The wider acceptance and better security of the alternatives such as credit and debit cards has meant a significant decline in the use of travelers cheques since the 1990s. In addition, the security issues for retailers accepting travelers cheques has meant that many businesses no longer accept them, making them less attractive to travelers. This has led to complaints about the difficulty that holders have in using them. In much of Europe and Asia, the cheques are no longer widely accepted and can not easily be cashed, even at the banks that issue the cheques.

Usage

Purchasing cheques for later use

Travelers cheques are sold by banks and financial specialist to customers for use at a later time. Upon obtaining custody of a purchased supply of traveler's cheques, the purchaser should immediately write his or her signature once upon each cheque, usually on the cheque's upper portion, this helps protect them if they are stolen. The purchaser will also have received a receipt and some other documentation that should be kept in a safe place other than where he or she carries the cheques. As traveler's cheques can usually be replaced if lost or stolen (if the owner still has the receipt issued with the purchase of the cheques showing the serial numbers allocated).

Cashing cheques

When wanting to cash a traveler's cheque while making a purchase, the purchaser should, in the presence of the payee, date and countersign the cheque in the indicated space, usually on the cheque's lower portion (if at a restaurant, it may be helpful to ask the waiter to watch and wait for this to be done).[1]

Denomination and change

Applicable change for a purchase transaction should be given in local currency as if the cheque were banknotes.

Traveler's cheques are available in several currencies such as U.S. dollars, Canadian dollars, Pounds sterling, Japanese yen, Chinese Yuan and Euro; denominations usually being 20, 50, or 100 (x100 for Yen) of whatever currency, and are usually sold in pads of five or ten cheques, e.g., 5 x €20 for €100. Traveler's cheques do not expire, so unused cheques can be kept by the purchaser to spend at any time in the future. The purchaser of a supply of traveler's cheques effectively gives an interest-free loan to the issuer, which is why it is common for banks to sell them "commission free" to their customers. The commission, where it is charged, is usually 1-2% of the total face value sold.

Deposit and settlement

A payee receiving a traveler's cheque should follow its normal procedures for depositing cheques into its bank account: usually, endorsement by stamp or signature and listing of 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 should 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 travellers cheques provide is the replacement if lost or stolen.

However, this feature has also created a black market where swindlers buy travellers cheques, sell them at 50% of their value to other people (such as travellers) and falsely report their travellers cheque stolen with the company where the cheque has been obtained. As such, they get back the value of the travellers cheque and make 50% of the value as profit.^[4]

The widespread problem of counterfeit travellers cheques have caused a number of businesses to no longer accept them or to impose stringent checks when they are used. It is a reasonable security procedure for the payee to ask to inspect the purchaser's picture ID; a driver's license or passport should suffice, and doing so would most usefully be towards the end of comparing the purchaser's signature on the ID with those on the cheque. The best first step, however, that can be taken by any payee who has concerns about the validity of any traveler's cheque, is to contact the issuer directly; a negative finding by a third-party cheque verification service based on an ID check may merely indicate that the service has no record about the purchaser (to be expected, practically by definition, of many travelers), or at worst that he or she has been deemed incompetent to manage a personal chequing account (which would have no bearing on the validity of a traveller's cheque).

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.[2]

Alternatives

The widespread acceptance of credit cards and debit cards around the world starting in the 1980s and 1990s significantly replaced the use of travelers cheques for paying for things on vacation.

In 2005, American Express released the American Express Travelers Cheque Card, a stored-value card that serves the same purposes as a traveler's cheque, but can be used in stores like a credit card. It however discontinued the card in October 2007. A number of other financial companies went on to issue stored-value or pre-paid debit cards containing several currencies that could be used like credit or debit cards at shops and at ATMs, mimicking the traveler's cheque in electronic form. One of the major examples is the Visa TravelMoney card.^[5]

See also

• Cashier's check
• Certified check
• Eurocheque
• Money order

References

External links

• American Express Traveler's Cheques merchant site
• Visa Travelers Cheques
• Visa Interpayment Travellers Cheques
• Thomas Cook Mastercard Travellers Cheques
• Travelex Travellers Cheques