For frequent travelers, the money they sink into seemingly endless foreign exchange (FX) fees could be better spent going to charity. In the Next-Gen Debit Tracker, James Lynn, co-founder of U.K. FinTech Currensea, explains how decoupled travel debit cards spare users from high bank fees, but can direct a portion of the savings to causes they care about.
Opportunities have opened for financial services providers to meet consumers where they are as they have become savvier about how they choose to spend their money as well as the causes with which they associate.
United Kingdom FinTech company Currensea is one such provider looking to offer this flexibility. The company started what has become known as the country’s first decoupled travel debit card, which is not tied to any one major bank but instead partners with a customer’s primary bank and draws from their checking or savings accounts.
The idea for the card came from two investment bankers after they returned home from a family vacation. Realizing that excess foreign exchange (FX) fees from international charges were eating up quite a bit of their budgets, they set out to create a multicurrency card that connected directly to an existing bank account while eliminating high bank charges and bypassing the need to open and manage several bank accounts or prepaid travel cards.
“We set Currensea up originally to solve the challenge of the fees when people spend abroad,” James Lynn, co-founder of Currensea, explained in an interview with PYMNTS. “We had personal experiences of using our standard bank debit cards and being charged 3% to 5%. And we’ve also had experiences of using prepaid cards, or challenger banks, which are fine. But the problem is they all end up as secondary accounts.”
It was the convenience of eliminating extra accounts and fees and creating an easy-to-use solution that they found appealed to a group of consumers — primarily travelers over age 40 who have no interest in the hassle of maintaining several accounts and the money transfers required to make sure they do not run out of funds.
To sweeten the deal for consumers — and to create valuable partnership opportunities — the company added a feature that allows users to donate a percentage of their savings to an environmental organization every time they spend money with the card. The idea took off, and for every eight sterling pounds donated, one tree is planted; every one pound donated removes 100 ocean-bound plastic bottles. The cards themselves are eco-friendly, too, as Currensea uses higher-quality materials to lengthen the life span of each card from three years to five years, cutting down on plastic waste and creating a smaller carbon footprint.
“It’s a magnificent way for charities to get this beautiful revenue donation stream coming through and for members to show their support by having a great branded card,” Lynn said. “For the charities, the marketing angle of having their card used all over the world is a fantastic thing for them.”
Moving Away From Traditional Banks
Decoupled debit cards, which work the same way as traditional cards except that they are not linked to or issued by a traditional bank, are growing in popularity around the world. The cards are issued and operated not by banks but by merchants or organizations, and they link directly to customers’ bank accounts typically through challenger banks, which aim to compete with larger, more established “high street banks” in the U.K. Purchases are verified and confirmed through an ACH transaction and are linked directly to a customer’s bank account.
Historically, larger banks cornered the market on issuing cards coupled with bank accounts. Merchants, which were charged high interchange fees every time the card was swiped, passed on the charges to consumers in the prices of goods and services. Issuing decoupled debit cards allows merchants to make money through subscription fees while paying smaller interchange fees.
“I think the problem historically had always been the economics behind the concept of going from a card to the end customer,” Lynn said. “We took a very different approach there, where we’ve used open banking so that our card goes directly to the online bank account, which gives some significant benefits to the card issuer like us from an economics angle. We also have the benefits of being that much closer to data when it comes to personalization.”
Today, the card is used in 120 countries with a wide variety of currencies, and the company claims to be the world’s first card-based payment instrument issuer, which is part of the second Payment Services Directive (PSD2) regulation that launched in September 2019 in the U.K. Working closely with Mastercard and the U.K.’s Financial Conduct Authority (FCA), Currensea said it also is the first in the world to develop technology that allows banks to be connected to the card networks using open banking.
Looking to the future, Lynn said he expects the growing popularity of open banking and digital banks to lead to an increase in decoupled cards. He also envisions many corporates finding a benefit in partnering with financial institutions (FIs) that can offer connections to customers and merchants who no longer wish to pay traditional cards’ exorbitant fees.
“I think there’s a definite lesson that incumbents can’t rest on their laurels,” he said. “Slowly, FinTechs are taking away some of the profitable pieces.”
It remains to be seen if decoupled debit cards will take off in other parts of the world as they have in the U.K., but as consumers demand more flexibility, less hassle and fewer charges when making purchases, there will be pressure for banks to compete with FIs that can give consumers what they demand.