Digital FX: COVID spurs digital transformation in travel, education and cross-border industries

Amid the coronavirus (COVID-19) pandemic, the way that we travel—and, in particular, use foreign currency—is set to undergo a massive transformation. That is according to Cameron Hume, the managing director at Travelex APAC, and Jun Otani, the representative director at Travelex Japan.

Since the pandemic, financial institutions, FX service providers and fintechs have had to restructure or scale up their services, Hume and Otani explain. Many incumbents, such as banks, have closed FX counters at branches. New entrants, including startups, have worked with legacy institutions and FX experts such as Travelex to bring new services to the fore.

As a result, more customers than before can order foreign currencies digitally via web- and mobile-based apps; receive currency in-store or via home delivery; or withdraw currency via credit/debit cards, preloaded multi-currency prepaid contactless cards, or via touch-and-go channels. Speaking to Japan Today, Hume and Otani explain what this means for international travel—an activity they expect to return to pre-COVID-19 numbers by winter 2022.

What impact has COVID-19 had on digital payments in the FX industry?

Hume: By necessity, COVID-19 has driven online shopping, which has resulted in people becoming more accustomed to online and digital payments. While travel had previously been linked to cash businesses—which, we believe, still have a very large market—what we are seeing is that the channels to get foreign currency are moving to digital. Travelex is building channels and products in that direction. So I think (this transition is COVID-19-related), but it is also a generational shift as millennials start their adult life, including travelling more—and they are used to smartphones.

Can you say more about the new service offerings globally and in Japan?

Hume: What we are doing from a travel perspective is pushing our online ordering capability, so you can order online via the Travelex website or app in markets like the United Kingdom and Europe and collect the hard cash at a physical store. In Japan, we have a great service where we get Japan Post to deliver to your home. In the future, we see a world where what we call pre-planners—or people on their phone—can order foreign currency online and then collect from an ATM: we are rolling this out in the UK in Q1 2022, and Japan will be a priority market as well. That’s on the cash side.

On the non-cash side, we have a product called a multi-currency prepaid card. In certain markets—such as Australia, where people haven't yet moved to payments via phone; it is still a tap-and-go type society—they’re using a pre-paid card where you can load up to 11 currencies, check your balance at any time, and tap to select the required currency for a contactless payment at any point-of-sale of a merchant that accepts Mastercard. Using this card, you can also withdraw foreign currencies at any ATM that accepts Mastercard.

Japan is a special market. What more can you say about what’s happening here?

Otani: In Japan, you have two options to receive your online order of foreign currency: at the Travelex store downtown or at an airport, or via Japan Post’s home delivery service. As you know, the Japanese mentality around cash is that they still believe in it compared to other countries. However, there are some changes happening in the small amounts payments sector here—with services such as PayPay and Suica expanding their services. But it’s not necessary to do the same thing in Japan as is done in other countries. In the next two to three years, Travelex will aim to set up something like “cashless 1.5”—rather than to jump directly to “cashless 2.0,” as has been a trend overseas. So, we plan to have card-and-cash, or card-and-remittance services for Japanese customers. That kind of hybrid service is going to be key to capture a certain pie of the market here.

When do you think the digital FX revolution will reach maturity in Japan?

Otani: It depends on the definition of digital FX. You could say that using pre-paid multi-currency cards and online foreign currency cash ordering is already part of digital FX, and we already have the products to help offer that. However, as Cameron mentioned, in Australia and the UK, we are already doing tap-and-go and other advanced services at   airports. In Japan, it will take another year or two because airport authorities here are relatively conservative. For example, you may be aware that certain people in Japan still don’t use online check-ins at airports; they prefer to queue at the check-in counter. So, it’s really hard to answer your question, but maybe early adopters will take a year or so, and the majority of the population will catch up in three to five years.

What effect will the transition to digital-first FX have on hiring and training?

Hume: From an APAC perspective, we are already seeing a shift. We are in the process of launching what we call our “Digital Airport” in Australia. The key pillars of that are scaling down the size and number of our retail stores; offering customers the ability to order foreign currency online on our app or website, and collect at a store or an ATM at the airport. And, when they get to the airport, our customer service ambassadors—what we call our employees—will help people that aren't familiar with digital or smartphones, as well as providing insights such as what kind of payments are accepted in each country and typical spend values. So, rather than just doing a transactional sale, it is more a skill set shift where they will help people through the process, and that is a very different skill set.

Is there concern that digital FX will lead to job losses in your industry?

Hume: There has been a lot of concern in retail across all industries about what happens to staff in the digital world, but I see it as strengthening the need to have people that understand our market, understand foreign currency, and are able to explain it to customers. Going overseas, for a lot of people, is still a big adventure. For example, I travel to Japan quite often. But my favorite ramen shop still doesn't accept cards or digital payments; it still only accepts cash. If you’re not familiar with that, you might expect that you can just “tap-and-go” in Japan.

Conversely, if you go to China, the digital ecosystem is very mature, but it’s probably not very convenient for foreign customers or tourists, because such visitors are not part of the local ecosystem and therefore are not readily able to use digital payments in China. So, while the new digital platforms work well domestically, when you travel internationally, it’s still a very different experience. At Travelex, we need employees who understand those differences and can explain it to our customers so they can have an enjoyable and a hassle-free overseas travel experience.

What can customers in the Japan market look forward to in the coming year or so?

Otani: In the next year or so, we are launching a new multi-currency prepaid card that will make it easier for customers to use foreign currencies. In the same period, we are launching a new international money transfer online service. While you can order currencies online on our website, we are also negotiating with airport authorities to provide our API to airports and other partners so that you can enjoy the same experience on their websites as well—with the currency being delivered directly from our vaults to your home or office.

What impact will digital FX have on global FX trading volumes in your industry?

Hume: If you concentrate on travel, education and cross-border industries, we will see recovery happen quicker than people think given how interconnected the world has become. And people will continue to travel to more places and potentially more often than before. So, firstly, our mission is to simplify people’s access to international money: our “One Retail” strategies enable customers to choose the channels they want to access their FX, whether that’s online, at a store, via ATM or via a card.

Secondly, customers want to be able to access a full range of products and channels—whether it’s cash, cards, or remittances—that they can take in their wallet. Thirdly, the FX market is the largest, most liquid market in the world. We are seeing fintechs entering and taking a lot of the cost and pain points out of cross-border transfer, for example. So, we are now seeing one day settlements for cross-border transactions where fees and timelines are very transparent—you can go online and see the status of your transfer. And I think that is taking a huge cost chunk out of that process.

In terms of the overall FX market, there’s a lot going on, including cryptocurrencies and central bank digital currencies. Travelex is interested to understand these new innovations and what they can deliver for our customers. With cryptocurrencies, we are taking a wait-and-see approach: obviously, crypto is still unregulated and, in some places, banned. It does have the advantage of blockchain technology, but we are very conscious of the AML/CFT (anti-money laundering and countering the financing of terrorism) rules and laws that protect customers and the integrity of the global financial system. Obviously, blockchain is also interesting, particularly when you talk about the cross-border transfer of currency.

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