Until recently, travel was a pastime only few could afford. Today, the whole world has caught the travel bug, with Britain leading the way: Brits average 6 trips over 2 years compared to the European average of 4. As more customers started going abroad, the problems and pain points only a few once faced, grew and multiplied. Amongst them, the biggest pain, was around payments.
To solve this problem, banks enabled debit and credit cards to work overseas. Cross border transactions became a high margin business and banks profited as overseas travel increased.
For customers, cards proved to be an easy and more secure payment option. However, the lack of transparency around fees made spending abroad confusing and expensive - you never knew how much you were really spending. Unfortunately, customers had little choice. They could either put up with the unknowns and the fees or seek alternatives like cash. It should come as no surprise that lots did - 3 in 5 people use cash abroad compared to 1 in 5 at home, even when visiting countries with similar payment infrastructure as the UK e.g. France, USA, Ireland etc. The impact - lots of money is left on the table.
Rather than try and make the payment experience abroad simpler, focus was on initiatives that reduce operating costs and risks. Overseas transactions have always been an area of high fraud which explains banks overly cautious approach of automatically declining transactions. In the past, that was the only option: approve or decline. Today, we have lots of new security measures and ways to authenticate transactions that mean we no longer have to sacrifice customer experience for security. Now that the trade off no longer exists, what are banks doing about it?Until a few years ago, not much. But then, the currency Fintechs landed. Their target - the high margin and underserved customers who go abroad. Their strategy - creating a customer experience that delivers greater transparency and simpler fees.