Huge opportunities globally for Dynamic Currency Conversion

The market for Dynamic Currency Conversion (DCC), where consumers are offered the opportunity to pay in their home currency regardless of where they actually make the purchase, represents a massive opportunity.

When Visa lifted its moratorium in 2010, allowing its acquirer customers to activate new accounts and new merchant locations for DCC in all regions, I expected a much more prolific growth in the number of companies and merchants offering this service.  Without those Visa limitations, new DCC participants into the market could further capitalise on foreign spending by converting new customers, while at the same time increasing their revenue from foreign transactions.

The market is ripe for this type of service.  The global economy is set to record 3.1% growth in 2013 with the IMF predicting global GDP to grow by 3.8% in 2014.  International tourist arrivals worldwide are set to increase by 3.3% a year from 2010 to 2030 to reach 1.8 billion by 2030.  Business travel alone recorded 212 million arrivals globally last year. 

Unfair practices of DCC are being ruled out.  In Australia, in February this year, the competition regulator launched a case against Visa in support of fairer DCC services.  The Regulator alleged that the company had abused its market power by preventing customers from using a currency of their choice when carrying out their international shopping.  In other words they were accusing Visa of actively limiting consumer choice by preventing retail stores in Australia from offering DCC or preventing businesses from supplying DCC services on ATMs.  Although Visa is asserting the opposite stating it will “vigorously defend itself” against these claims, the reality looks like Visa is simply not keen to drive the growth in any competing DCC services as this represents a loss to their own earnings from the transaction. 

As of September this year Brazilian banks, Itaú and Bradesco, no longer allow DCC on purchases made with credit cards they issue.  The Association of Brazilian Credit Cards and Services Companies (Abecs) has recommended against the practice stating that they were dealing with a number of complaints from Brazilian consumers who bought goods in Brazilian Reals but were confused by credit-card statements showing the purchase in dollars. 

It’s too early too tell the impact of this decision on e-commerce merchants selling into Brazil but certainly not being able to pay for products on foreign websites in Brazilian Reals will adversely affect sales for international e-commerce merchants.  I think this decision will illustrate how a lack of DCC services ultimately does not serve the consumer well.

Despite regulatory issues like this, there is still plenty of growth available in this industry over the next 5 years.  I’ve extolled the benefits of DCC before in my earlier blog namely the ability for consumers to view foreign prices in their own currency therefore making a more informed purchase.  Equally I’ve highlighted that some merchants are using it as an excuse to levy unfairly high fees which fuels consumer fears that this type of currency conversion is artificially higher than actual market rates.

The market is ready: the global economy is returning to levels of stability and tourism and business travel is growing annually.  The key here, on the merchants’ side, is to ensure fair fee levels.  Once there is complete transparency and trust in this system, there are infinite possibilities for merchants to get on board and offer DCC as part of their service. 

Sources include: Forbes.com, FT.com, Irish Independent, World Travel Market Euromonitor Report 2013, Tourism Trends and Marketing Strategies UNWTO, ABECS website

O2 money card ... An opportunity lost or still available?

When the O2 money card first came out in 2011 in Ireland it got great traction; within one month of its launch O2 had sold more than 50,000 cards.  Customers could top-up their cards online through their bank accounts, in any O2 retail store or in over 1,500 Payzone outlets nationwide.  Card balances could be checked at any time online or via text message. It was positioned as an easy way to manage personal cash flow and without incurring additional debt.

By 2012, O2 had signed up more than 100,000 customers and reported over 1.2 million transactions through their cards, citing that 80% were online purchases with the majority of spend going towards well known music and book retailers, airlines, online gaming services and supermarkets. 53% of the O2 Money Card customer base were under 35 years old and it was made available to everyone aged 13 or over.  A valuable customer segment and one which is highly attractive to players in the financial services market.

Heralded as something revolutionary in terms of payment options, you would think that this momentum would have continued and more consumers would have opted to take out prepaid cards.  In reality, this has not been the case.

A survey conducted by National Consumer Agency in 2012 stated that there were 9 prepaid cards in circulation on the Irish market. Examples include Swirl MasterCard and Ryanair Cash Passport.  The features of prepaid cards vary significantly, particularly the methods of purchase, operation, fees, terms and conditions.  There is also huge variation in the charging structures between these products.  In some cases they can have up to five different fees involved in using them for example sign-up fees, top-up charges and various transaction charges each time the card is used in making a purchase.  Likely consumers are confused and find it difficult to compare the products on offer, as well as consider many of them to be poor value 

In 2012 it was estimated that there are around 200,000 prepaid card holders however there seems to be little growth, or no evidence of growth since the initial surge of O2 money card’s success.  Competition in the prepaid market competition is now virtually non-existent, with little or no mass advertising to try to attract more customers. 

This represents a real opportunity, especially in the financial services sector, to revitalize interest in this type of service.  At a time where consumer trust in banks is very low, and there is a well-founded fear of accumulating excessive debts, a product like this is ideal.  Add to this the increasing fee structures for current accounts and you can understand why people want something different.  Consumers are actively seeking new alternatives. 

With prepaid options, consumers can load money onto their cards and use this instead of incurring fees associated with payment via their Laser or Visa cards.  Equally there is no pressure on them to have a certain amount lodged in their accounts to avoid fees. Instead they can lodge smaller amounts to the prepaid card and use this. 

Due to this no-debt factor, prepaid cards are often available to the under 18s and the student segment - younger people who wouldn’t have a credit rating.  Again, this represents an ideal opportunity for financial services companies to develop prepaid products to bolster their student package offerings and attract this lucrative segment.

If we consider the move towards a mobile wallet, where brands are offering mobile contactless purchasing options, then money cards integrated with mobile apps are a valuable and highly relevant payment option. It is surprising therefore that O2 have not developed this further.

The timing is right for a reinvigorated prepaid offering -something straightforward and easy to grasp.  Consumers are debt-adverse and actively seeking new and inexpensive ways to manage their money.  The market is ripe for a cool alternative to bank payment products, integrated with mobile apps and wallets, and leaders in this space would certainly see positive results.

Sources:

Survey of Prepaid Payment Products, National Consumer Agency, October 2012.

Archived o2 press releases February 2011 & February 2012.

‘Shoppers warned over high charges for prepaid cards’, Irish independent Article, March 2012.