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