American Express is targeting its travelers cheques to people in foreign countries who like to keep cash dollars at home because they don't trust the local currency or banking system.
The company currently markets a version of its travelers cheques, called Cheque-Secure Funds, in Mexico, Argentina and Russia and is looking to launch it in other countries. American Express is also looking into offering these cheques to immigrants and other unbanked cash users in the U.S., but doesn't have immediate plans to do so.
This push is part of a larger effort to diversify products and services in its travelers cheques and prepaid division. A card equivalent of the travelers cheque was launched last October.
Sales of American Express travelers cheques have dropped from $24.6 billion in 2000 to $19.2 billion last year. More than half of 2003 sales came from outside the U.S. American Express attributes the decline to poor travel conditions rather than the increasing use of card products, which the American Bankers Association says has surpassed cash and checks in the U.S.
"Some people like paper and some people like plastic, and I think there's going to be room for both in the future," says Randall Beard, svp of global marketing and product management for travelers cheques and prepaid products. U.S. travelers take $100 billion in cash annually overseas, he says, and that's a sizable market to tap. "We're quite bullish and think there's a lot of opportunity left in our product portfolio, whether for travel or cash at home."
Russians living in the biggest cities keep an average of $860 in American currency at home. Almost half of urban households (45 percent) keep cash dollars on hand, for a total of $13.5 billion. Besides general distrust of the local banking system and economy, 77 percent of those who keep cash at home are concerned that something may happen to it, including theft and natural disaster. Most Russians contribute to and use their cash dollars a few times a year or less. American Express is positioning its cheques as a safer alternative.
Sources agree that in markets like Eastern Europe, this could go over well. "It would be particularly profitable if it were being stock piled," says Tim Sloane, director of Mercator's debit advisory service. "That would give them the float for a longer period of time than is typical in a travelers cheque."
Sloane says that increased availability of ATMs worldwide is driving a general decline in travelers cheques, but there are still markets like Borneo and Guinea that are off the grid and rely on cash. American Express' services like helping with lost passports and closing out stolen credit cards continue to drive demand, he says. The fact that some people still want to use paper currency but don't feel comfortable carting cash also drives demand.
American Express has more clout than MasterCard or Visa in countries whose citizens are credit averse.
But while trust may not be an issue in many countries, cash is still king and that could be a hurdle when targeting locals with money at home, he says.
The movement by foreign governments in South America, Southeast Asia and Eastern Europe to encourage direct deposit of salaries could spur banking activity in emerging markets, says Rod Nixon, a MasterCard International vp. This trend may also hamper American Express' efforts.
