What is the future for Retail Foreign Exchange in the UK?

1. What is the future for Retail Foreign Exchange in the UK? It has now been nearly 3 months since most retail bureau de change outlets in the UK closed their doors due to the Covid 19 lockdown. Whilst non-essential shops can now open from the 15thJune, many bureau de change branches will remain closed due to the major travel restrictions that are still in place. So what will be the future for the thousands of bureau locations in the UK? Obviously, nobody can be sure at the moment, however what we do know is:  Three to six months of no trade will force many retail FX operators into financial difficulties, with several large players already announcing staff cuts and branch closures.  The number of outbound travellers for the year will be considerably down on 2019 numbers, which will have a direct correlation with the reduced purchase of foreign currency.  In-bound tourist numbers to the UK will also see a significant decrease over 2019, affecting travel gateway and city centre bureaux.

2.  Currently no-one knows what the effects on wholesale currency supply will be from the prospective sale of Travelex and, if it is sold, where the new owners will focus the business. There is therefore the possibility of supply interruptions whilst new or amended arrangements are put in place.  The perceived ‘stigma’ of sterling cash as being a potential virus carrier could extend to foreign currency cash and travellers therefore considering alternative payment methods. “More than half of UK consumers admit their concerns about the global pandemic would make it likely that they would choose contactless payment methods over cash when traveling abroad. Prior to the pandemic the majority of travellers, at 65%, said they took at least some cash on their trips. Of those who didn't use a debit card during their last trip, 68% said they would in the future, while almost 97% of those who had used one in the past indicated they were planning to do so again”, according to recent research from Consumer Intelligence. https://www.consumerintelligence.com/travel-money- survey  The cost of the HMRC Money Laundering Supervision Fee has risen to £300 pa per branch location for selling foreign exchange (over 100% increase), as well as for selling Money Transfer services (so £600 PA per branch offering both products)!  Shopping Centres and Gateway location rents are high and whatever “rent holidays” that have been given will inevitably come to an end before long.  Ancillary services often offered in bureau de change retail outlets, such as Money Transfers, have seen a shift towards digital whilst physical locations have been closed, will these customers come back to retailers? Therefore, it’s highly likely that we will see a switch to more ‘click & collect’ locations, where the HMRC fee does not apply, there is no need to fund the holding of currency stocks and fewer cashiers are required. Many of the larger chains already offer such services and their expansion would appear to be a foregone conclusion.

3. It also seems to be certain that we will a reduction in the number of retail Foreign Exchange locations, as the larger players review their networks and smaller players struggle with cash- flows; do we need tens of thousands of retail FX locations in the UK? Further consolidation, through mergers and acquisitions, particularly amongst some of the smaller players, is also highly likely. Given the research findings mentioned above, as well as using their debit cards, will UK travellers seek out alternative payment methods at the expense of currency cash, such as Multi Currency Accounts (MCAs), pre-paid travel money cards (TMCs) etc..? Travel Money Cards are still reasonably popular, although they have never really become truly mainstream products but there has clearly been huge uptake of Multi Currency Accounts in the last few years with the like of Monzo and Revolut registering considerable user numbers, which makes further declines in cash usage abroad even more likely. Given their lower operating costs and huge footfall numbers, it seems highly probable that the supermarkets and other large retailers that operate currency exchange bureaux are possibly in the best position going forward to continue offering bureau de change services. They are also well-placed to benefit from any increase in “click & collect” turnover. Having worked in the Foreign Exchange sector for over 40 years, I have seen the growth in retail FX bureaux, whereby Thomas Cook led the way over 25 years ago and then the Post Office, Marks & Spencer, supermarket chains entered the market and specialised FX operators such as Eurochange, ICE, Number 1 Currency etc. grew their presence, all finding their place in the market. However, the question now is whether or not there will be enough business for all of them to survive. The digital age of the past 10 years has not hugely affected this business until now but the upheaval resulting from the lockdown could well be the catalyst for change.

4. Are we about to see a significant reduction in the demand for currency cash? Will we see a corresponding fall in the number of bureau de change locations in the UK and will consumer habits regarding currency cash usage change? Time will tell but it would be interesting to hear comments from industry colleagues on this subject. Mark Crowson FX3 Consultants Ltd 16thJune 2020