Crown Currency Exchange
Should the Collapse of Crown Currency Exchange Worry Customers of Other Travel Money Providers?
The collapse of Crown Currency Exchange, a travel cash supplier based in Cornwall, is getting increasing coverage in the media. So who are Crown Currency and should this collapse worry customers of other online travel money providers?
Stephen Heath, Chief Executive of prepaid currency card specialist FairFX.com explained: “In the travel money marketplace there are 4 main ways that people spend overseas. These are:-
- Travel Cash – either bought at a Bureau de Change or sent in the post
- Travellers Cheques – decreasing in volumes and very “old economy”
- Prepaid Cards – rapidly increasing market sector (including the FairFX $, Euro and £ Anywhere Cards)
- £ Debit and Credit Cards – simply spending using a £ Sterling card and incur the fees from currency conversion
“Crown was firmly within the first category – Travel Cash – and within that was relatively unique. Crown offered travel money that you paid for now in advance of travelling and received the foreign currency sometime (up to 9 months later) in the future.
“Crown’s rates got more attractive the further in the future the consumer was buying for. This is like a “forward” contract in the FX market although the rates that Crown were offering for longer-dated future delivery were surprisingly attractive to consumers.
“It is this peculiarity of Crown that will have contributed to them being able to end up in the position of having an estimated £20 million of delivery liabilities versus only £3 million of available cash because as long as new orders were coming in then they could meet their immediate obligations.
“The vast majority of travel cash providers do not fall into this category and exchange cash in person at bureau de changes or delivery next day in the post and as such there is a lesser risk of other providers running into these difficulties and if this did happen then very few customers would be effected because the transactions are all “same day”.
It seems that the events at Crown serve to emphasise just one of the attractions of a prepaid card as a better travel money solution.
Heath added: “Most Travel Money cards, including FairFX, are actually issued by Newcastle Building Society (NBS) and the funds loaded on to cards are instantly credited at NBS on behalf of cardholders. NBS is a well capitalized 'mutual' Building Society. As such, NBS is regulated under the Building Societies Act of 1986 as amended at the end of 2003, as well as by the Financial Services Authority (known as the FSA).
“Under the terms of the Act a company can only be called a Building Society if ‘its purpose or principal purpose is that of making loans which are secured by residential property and are funded substantially by its members’.
“The Act goes further and stipulates that at least 50% of the funds raised by a Building Society must be raised from deposits from the members. In this respect, the Building Societies are much more conservative than Banks and therefore less risky.
“Therefore, in the unlikely event of NBS running into financial difficulties, the money would be protected. Indeed, NBS themselves said that they are able to guarantee the safety of all prepaid card balances as this money is held completely separately in a designated client account, which would not be affected even in the event of the Society experiencing financial difficulty.”