Traveler’s cheque

A traveler’s cheque 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 traveler’s cheques as currency. Merchants and other parties would accept them
as if they were currency because, as long as the original signature and the signature
made at the time the check is used is the same, the traveler’s check issuer will unconditionally
guarantee payment of the face amount even if the check is fraudulently issued, was stolen
or lost. In short, a traveler’s check can never ‘bounce’
unless the issuer goes bankrupt and out of business. If a traveler’s cheque were lost or stolen,
it could be replaced by the issuing financial institution. Their use has been in decline since the 1990s
as alternatives, such as credit cards, debit cards, and automated teller machines became
more widely available and were easier and more convenient for travelers. Travelers cheques are no longer widely accepted
and cannot easily be cashed, even at the banks that issue the cheques. 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, and in 1874, Thomas Cook was issuing ‘circular
notes’ that operated in the manner of traveler’s cheques. American Express was the first company to
develop a large-scale traveller’s cheque system in 1891, 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 amounts of cash. Several brands of travelers cheques have been
marketed; the most familiar of those were Thomas Cook Group, Bank of America 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. Traveler’s cheques can usually be replaced
if lost or stolen. 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. 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 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, he or she 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 fraudsters buy travellers cheques, sell them at 50% of their value to other people
and falsely report their travellers cheque stolen with the company from which the cheque
was obtained. As such, they get back the value of the travellers
cheque and make 50% of the value as profit. The widespread problem of counterfeit travellers
cheques has 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,
or at worst that he or she has been deemed incompetent to manage a personal chequing
account. 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. 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 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. 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

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