The Amazing Race 34, Episode 9

Malaga (Spain) - Ronda (Spain)

What to do where cash isn’t king

One of the trends accelerated by the COVID-19 pandemic has been the reduced acceptance of cash as a form of payment.

Earlier in this season of The Amazing Race, for example, Molly and Emily made a wrong turn into a parking garage and then couldn’t figure out how to get out without a credit or debit card to use at the unattended pay station at the exit. Eventually, they found another pay station elsewhere in the garage that took cash in Euro notes or coins. But not infrequently these days, there is no provision at all for cash-payment fallback.

Although COVID-19 is spread primarily by air, not by surface contact, fear of surface contagion has provided a rationale (or a pretext, for those businesses and public agencies that already had other reasons, as many did) to stop accepting cash. In other travel contexts, including at TSA checkpoints, the fallacy that “contactless is safer” is invoked even when the alternative to handing over a physical document is having to remove your face mask, which is clearly much more dangerous. Similarly, “For health reasons, we only accept contactless payments,” is an easier sell and seems less customer-unfriendly than, “Your bills and coins aren’t accepted here any more.”

More and more products, services, and points of payment are unavailable without a credit or debit card or some other form of plastic or virtual payment such as a smartphone payment account or a stored-value mass transit farecard.

You can’t always anticipate when and where cash won’t be accepted, and no single type of card or form of virtual payment is universally accepted. In some European countries, for example, payments that in the U.S. would be made by credit or debit card are instead made by transfers directly between bank accounts. If you don’t have an account with an IBAN (International Bank Account Number), which U.S. bank accounts don’t have, you’re out of luck. In China, many merchants and public and private services — from bikeshare rentals to the tiniest tea stalls — not only don’t accept cash but accept only AliPay or WeChat Pay (not Google Pay or Apple Pay), and/or are accessible only through smartphone apps that are available only for phones with Chinese SIM cards and phone numbers and have user interfaces only in Chinese.

Sometimes you can cut a deal with a sympathetic bystander: you give them 10 Yuan (US$1.50) in cash, and they buy you a bowl of noodles from the street vendor using their smartphone. If you hold out cash, and a merchant turns it down, a local will often step in to help, even if you don’t speak the local language. But depending on the setting (what if you are alone at an unattended kiosk?) and the product or service, that isn’t always an option.

The most widely (if far from universally) accepted alternatives to cash payment are MasterCard or VISA credit or debit cards and smartphone payment accounts such as Google Pay and Apple Pay.

With cash, you can limit your exposure to pickpockets and snatch thieves, especially when you are making small purchases in crowded public places, by carrying only a small amount of local currency on your person or easily accessible — enough for a day or two or the largest impulse purchase you might want to make. You can keep most of your cash, as well as your credit cards, buried deep in your luggage, or locked up in your hotel, hostel, or apartment if that seems sufficiently secure.

Is there anything similar that you can do to limit the risk you are taking when you hold out a credit or debit card, or your phone, to pay your bus fare or make a small purchase in a crowded market?

These are some of the worst places to have a high-limit credit or debit card, or a smartphone, accessible or visible. I’ve had my wallet pickpocketed while boarding a bus (in Oxford Circus in London) and my cellphone snatched on a downtown sidewalk (in Dar es Salaam). Either could have been a disaster if my wallet had more than a nominal amount of cash in it, or any credit cards, or if my phone had given access to any payment accounts. Luckily for me, the phone-snatching was before smartphones.

Street-level thieves work with organized gangs that will run up charges on a stolen card, until it is blocked or reaches its limit, within minutes or hours. If your phone is snatched while you are using it to pay for something, it will probably be while it is signed in and gives access to any financial apps you have installed.

You might be able to get your cards and phone blocked, but by then the damage could be done. You can eventually get most fraudulent charges reversed, but that could be an arduous process and might not be possible at all, especially with a debit card rather than a credit card, with purchases outside your home country, and with app-based money transfers. Chargeback rights are an important protection for consumers, but far from a guarantee against financial losses if your card or your phone (or worse, your card and your phone) is stolen.

A few new app-based financial services including Wise.com and Revolut.com have begun issuing debit cards that can be useful in reducing this risk, although this isn’t a feature they advertise. Unsurprisingly: Unless they are charging large maintenance fees for small accounts, banks want you to keep a large balance in your account, which they get to use, not a carefully controlled and limited balance. Mostly these services advertise themselves as international money transfer services and as banks for expatriates who have income and bills in multiple countries and currencies. It may not be obvious what value they offer travellers.

I’ve been using Wise. Wise works like this: You can open a Wise bank account through their Web site or smartphone app. They require you to send them a selfie of your face and a photo of your passport or other government ID. I don’t like this, but they claim it’s required by U.S. “know your customer” banking regulations, which might be true. There’s no fee to open an account, no monthly fee, and no minimum balance. If you are a U.S. resident, you will initially be given a Wise account in U.S. dollars with a U.S. bank. You can add linked accounts in other countries and currencies later, as needed, fairly quickly and easily.

(The company was founded as “Transferwise” in 2011, and shortened its name to “Wise” in 2021. Much of the information about the company available online still refers to it as “Transferwise”.)

Once your Wise account is open, you can get a Wise debit card for, if you are a U.S. resident, a one-time fee of US$9. Wise accounts and services are also available to residents of many other countries, with varying but generally similar terms and fees.

Using the ACH (Automated Clearinghouse) numbers for your U.S. Wise account, you can transfer money into your Wise account from any U.S. bank account. You can make ACH transfers from most U.S. banks’ Web sites or apps at no charge, and Wise doesn’t charge to receive ACH transfers. ACH transfers are what you use in the U.S. when you pay bills online directly from your bank account. Some banks refer to ACH transfers as “electronic checks”. You can also fund your Wise account with a credit or debit card, or with a “wire transfer”, but those incur much higher fees.

You can “link” another bank account to your Wise account, so that you can initiate transfers from your Wise account. But that incurs fees from Wise and, perhaps more importantly, that defeats much of the risk-limiting purpose of having a stored-value debit card. If you link your primary bank account to your Wise account, anyone who gets access to your Wise account (such as by snatching your smartphone while it is signed in) can drain your entire primary bank account.

It’s safer and cheaper (no fee from Wise, and typically no fee from your bank) to initiate “push” transfers into your Wise account from another bank account that isn’t linked from your Wise account and isn’t accessible from an app on your smartphone, and that uses some method of authentication, such as a password and a hardware security dongle, that doesn’t depend on your phone.

Transfer only a moderate amount at a time to your Wise account — whatever you want to have readily available and are willing to risk losing if your card is snatched. I transfer US$100 or so at a time if I’m only using it for incidentals. If your Wise card is lost or stolen, you can block it pretty quickly from the Wise app. But there’s a good chance that if your card is stolen, your phone will be stolen at the same time, and the value on your card will be drained before you can block it.

Once you have money in your Wise account, you can use your Wise card (almost) anywhere a MasterCard debit card is accepted. You can change how it is accepted (for ATM withdrawals, for chip-and-PIN transactions, for online transactions, for contactless proximity payments, etc.) on the fly from the Wise app. U.S.-issued Wise cards have a magnetic stripe, but if you limit them to mag-stripe use, and don’t enable chip-and-PIN or proximity transactions, they won’t work in many other countries where all cards have been chip-and-PIN for years and a significant number of vending machines and card readers don’t include mag-stripe readers.

The only fees for debit-card purchases with a Wise card are for currency conversions. If you make a purchase in a currency you don’t have in your Wise account, it will automatically be converted from whatever currency you have. If you know you are going to be making a lot of purchases in a particular currency, you can save on currency-exchange fees by adding an account in that currency to your Wise account, and converting a block of money into that currency. But even if you keep only U.S. dollars in your account, the Wise fees for small foreign-currency purchases are typically less than those of credit cards that advertise “no foreign transaction fees” but charge a more-or-less-hidden markup on the exchange rate.

Wise is able to reduce the “spread” between the buying and selling exchange rates and minimize fees, especially for small transactions, by operating internationally and offsetting transfers in opposite directions. Suppose you buy something in Zlotys, but have only U.S. dollars in your Wise account. Meanwhile, a Wise customer from Poland, visiting the U.S., makes a purchase in U.S. dollars but has Zlotys in their Wise account. Rather than making two opposing transfers or converting any money, Wise offsets the two transactions on its own books. To make money on the deal, Wise only needs to charge enough to cover its own book-keeping costs, since it’s not actually transferring or converting any dollars or Zlotys. Transfers and conversions can be made as quickly as Wise can make them on its own books. And if there’s an imbalance — perhaps U.S. dollar customers spend more money in Poland than Poles spend in the U.S. or on U.S. dollar purchases, or vice versa — Wise makes only one occasional large bulk conversion to balance its books. As a percentage, the fees for such a large balancing transaction are a tiny fraction of those for small conversions or transfers.

This business model isn’t new. It’s merely a high-tech implementation of what’s been practiced for centuries in parts of Asia and Africa as hawala. Similar systems by other names are used in other parts of the world, and multinational companies use the same technique for internal accounting.

When it’s used by immigrant and diasporic communities with ties to the global South, hawala is treated by the U.S. and some other governments as though it were intended primarily to avoid government financial surveillance and controls, or for money laundering or terrorist financing, rather than as simply a more efficient way to avoid unnecessary currency exchange and transfer fees and delays. But when white people from northern Europe start offering essentially the same service through a smartphone app, they are celebrated as innovators and showered with investments from venture capitalists. I suspect that if Wise were based in India rather than Estonia, or had been founded by and marketed its services primarily to Muslims, the company would have had a harder time getting approval from U.S. banking regulators.

Wise offers a variety of other services, but I think its greatest value for most international travellers is as a rechargeable prepaid debit card for small daily expenditures — the only card you carry in your wallet or use in crowded public places. You could use a “no foreign transaction fee” credit card for purchases like this. But a card you use for larger expenses like hotels probably has to have a much higher credit limit than the amount of money you need for daily cash-like expenses. You can also buy prepaid stored-value debit cards, which limit your exposure if they are stolen, but they tend to have very high fees.

You can use your Wise card to withdraw cash at ATMs around the world. But unlike some other banks (notably including Schwab Bank and Fidelity, for ATM cards issued to their brokerage, investment, or retirement account customers), Wise doesn’t reimburse local banks’ fees for ATM usage. A Wise card is a fallback, though, if another ATM card is lost, stolen, or blocked. Since a Wise card is intedned for international use, it is less likely to be blocked on suspicion of fraud merely because you have used it abroad.

Although you may never need it, a Wise account also offers you the ability to make or receive payments in other currencies, or transfer money to or from bank accounts in other countries that use different systems for electronic funds transfers. That could be useful if you want to send prepayment or a deposit for services directly to a person or company in another country — or if they want to refund a deposit or overpayment.

Last month, for example, on my first trip to Europe since the pandemic, I discovered that my stored-value Dutch transit farecard had expired. I could reclaim the expired value — but only by direct transfer to a European bank account with an IBAN number. I was able to get my money back as a direct deposit to my Wise account, using the IBAN for my Wise Euro or British Pound accounts. Large international transactions are handled by wire transfers or SWIFT transfers, but the fees for these are prohibitive for small transactions like this. Using your Wise account also avoids the risk of revealing your main bank account number, or even what bank it is at.

Some caveats about Wise accounts and cards: There’s a short but somewhat puzzling list of countries here where a Wise card can’t be used, including Kenya, Vietnam, Bolivia, and several other popular tourist destinations. Sometimes and in some places only locally-issued cards are accepted, even if they have the right MasterCard or VISA logo. If you hold any foreign currency in your Wise account, it is considered (so far as I can tell — I am not an attorney or tax preparer) to be a foreign account which has to be included if you have to file an annual foreign bank account report (FBAR) with the U.S. government. As a U.S. citizen or resident, you only have to file an FBAR if you have a total of US$10,000 or more in one or more foreign account. But if you do have to file an FBAR, you have to include all your foreign accounts, no matter how small, including each of your non-USD Wise accounts.

I have no financial interest in Wise, but if you use this link to sign up, you will get your first international transfer of up to GBP500 (~US$600) free, and I’ll get a small referral fee. If you’ve rather not use a referral link, here’s a neutral link to sign up without the bonuses for you or for me.

I’ve used Wise and am happy with their services so far. They aren’t flashy, and they haven’t made constant changes/improvements or tried to push services I didn’t ask for. They’ve gotten substantial investments in their company, but they have been showing an operating profit for the last several years. I don’t need or want drama with my banking. I want efficiency and stability.

The major competitor to Wise as the issuer of a prepaid multi-currency debit and ATM card is Revolut. Revolut has a much larger corporate valuation than Wise, and its founders are billionaires, but Revolut has been operating at a loss, and questions have been raised about how Revolut treated its workers before and during the pandemic. Revolut offers a wider array of services than Wise, including trading and holding stocks, bonds, and cryptocurrencies. Like Wise, Revolut offers a free account with no monthly fee, but Revolut also offers several tiers of premium accounts with progressively higher fees. You can open and manage a Wise account from the Wise.com Web site, but Revolut requires a smartphone with their app installed.

I’ve been tempted to open a Revolut account for comparison purposes, but I’m satisfied with Wise for my purposes, and I’m hesitant about opening too many new bank accounts that I would then have to monitor for unauthorized activity. I’d welcome feedback from readers who have used Revolut or other competing companies, or who have other strategies for non-cash “walking around” money and small purchases.

Cash isn’t always acceptable, but no card is a complete substitute for cash. There might be no ATM at the first place you want to buy a meal or pay for a place to sleep after crossing a border, or the ATMs might not be working if there are routine rolling blackouts. Banks and ATMs can be shuttered without warning by government decree, as has happened several times in Argentina in recent years. Carry a supply of cash (all but a minimal amount well hidden, not in your wallet, purse, or pocket) as a backup, including some small bills for making payments directly and some clean new US$100 or €100 notes (and/or whatever “hard” currency is preferred in that part of the world) for the widest acceptance and best rate with informal moneychangers.