Why Travelex Is So Expensive & How It Makes Money

If you’re a regular international traveler or just planning a single trip out of the country, there's one problem you know you have to solve: money. Most countries don’t want your American dollars, so you have to get your hands on some of their money. As the economic markets aren’t a simple thing to navigate, one dollar usually doesn’t equal one of any other type of currency. The exchange rate depends on a host of factors over which you have no control, and you probably didn’t think to read our article Best Ways to Save on Currency Exchanges a couple of weeks before your trip.

That’s what companies such as Travelex are banking on – literally. There are cheaper ways of exchanging your money, but none are more convenient. And as with most purchases, convenience comes with a markup.

Travelex is the world’s leading foreign-exchange business, according to its website. The company exchanges currency for 37 million customers each year – about 2,000 every hour. It has 1,500 stores and 1,250 ATMs in 28 countries. You probably know Travelex best as the kiosk you see in some larger airports, seaports, rail stations and other tourist locations. More than 40% of the world’s travelers – that’s approximately 1.7 billion passengers annually – pass through airports with at least one Travelex location. If you’re looking for a well-known, reputable brand for exchanging your money, you definitely have that with Travelex.

The company’s main business model is the same as any currency-exchange company – the markup or spread. Matt Richardson – owner of FX brokerage and consulting firm betterFX and a former Travelex employee for 13 years – says, “The main way Travelex makes money is indeed on the foreign-exchange spread (the difference between the customer buy rates and sell rates and the wholesale bank-note market rates). Margins are often over 10%, with spreads as high as 26%, so in branches with decent volumes it is a highly profitable business model.” (For more, see Understanding the Spread in Retail Currency Exchange Rates.)

During his time at Travelex, Richardson and his fellow agents were incentivized to upsell. “Tellers could earn incentives for encouraging clients to change larger sums,” he says. “Each teller would be measured for their average transaction size. Incentives were in place for selling the buy-back guarantee, selling Cash Passport, travel insurance, prepaid phone cards, overseas sims, etc.” A quick look at Travelex’s website supports these incentives and bonuses. 

It’s easy to say that Travelex is profiting off the convenience of exchanging your money as soon as you get off the plane – and it is – but it’s more than that. According to Richardson, “Very often it is because they operate in very-high-cost locations, such as airports and premium retail locations. Airport locations can be open 20 hours a day or more, including weekends and public holidays, so staff costs and other overheads are high, too.”

He continues, “They also have a strong international brand – with over 1,500 branches all over the world – and believe that allows them to charge more as (somewhat ironically) travelers feel it is a name they know and trust. Not all their branches have the same rates, so it’s worth comparing a downtown branch with the airport one.” 

Indeed, Richardson is right. Many airports don’t have set monthly lease rates the way retail locations do in a mall. Anybody wishing to do business with the airport has to bid on the highly valuable space.

Travelex doesn’t just operate in airports and other travel hubs; you can find retail locations in other places as well. According to Richardson, often it’s better to do business away from airports, though not always. Again, because of the convenience and high overhead of the airport, prices do tend to be higher there. And he has another piece of advice: “Travelex also has an online ordering service that allows you to collect from the airport and usually offers better rates than a walk-up service – sometimes by 10% or more.”

Judging by Travelex’s website, it would like you to exchange your currency online – but is that a better deal? In most cases it is, because the company doesn’t have all the overhead costs of a brick-and-mortar location. There’s  another reason Travelex wants you to do more business online.

According to Richardson, “Online allows Travelex to have a more interactive relationship with their clients and build loyalty and repeat business. A customer who walks up to a location in a travel hub and changes money is a transient interaction with the firm. Online means collecting email details and then being able to data-mine client activity, market to those clients in future, and so on. Margins are lower online, but costs are lower, too, so net margins are probably more or less the same. What’s important is that the long-term value of each client is higher. The other problem with the bureaus in airports is that the contracts with the airport company are usually for three, five or seven years and could go to a competitor at the retender stage, which would mean an instant loss of all that business. Their online transactions cannot be lost overnight in this way.” 

What if you could put your foreign currency on a debit card and have it with you whenever you’re traveling? Even better, what if you ran out of a certain country’s currency but had another currency on the card, and it was automatically exchanged to what you need at that time? The Cash Passport card from Travelex does just that, but is it worth it?

Much like a prepaid card, you can only spend what’s on the card, so you can better control your budget. The biggest drawback is the multiple fees. There’s the initial currency exchange, a withdrawal fee, possibly an inactivity fee, and if you choose to convert back to dollars and cash out of the card, there’s a fee for that too. According to Richardson, if you put $1,000 on the card, converted it to British pounds and then cashed it out later, you could pay nearly 14% in fees. 

Yes, says Richardson: “Generally speaking, buying currency from airport or other travel hubs is the most expensive way of buying or selling foreign currency, so look for online alternatives or apps like Revolut, which can offer much better rates. Even using credit cards abroad usually works out much cheaper and is far more secure than carrying lots of cash around. So take a small amount of cash only.

"If you do need to take a larger amount of cash and think that you may come back with a chunk unused, take out a buy-back guarantee, which, for a fee of a few dollars, allows you to convert leftover currency at the original sell rate rather than the buy rate. This can save you as much as 25% or more by avoiding the hit of the spread,” Richardson adds.

Remember the value of your time, says Richardson: “Bigger brands are often the most expensive but, equally, driving an hour away to save a few dollars may not really make sense. If you are not changing a huge amount, maybe convenience is more important. As with any financial service, shop around.”