The typical ad for a traveler's check carries a message of fear: In every vacation spot lurks a light-fingered local resident out to lift your checks. That's why you'll need a network of refund offices stretching from Tampa to Timbuktu.
Actually, only 3 out of every 1,000 customers lose their checks. But every person who buys them is letting the check company hold - and invest - their vacation budget for the month or so it takes traveler's checks to clear.
In times of high interest rates, that kind of business is especially profitable. So traveler's check companies are locked in a fierce battle for a bigger chunk of the billions of checks that will be sold this year.
''There is a hot battle going on,'' says Robert Terkhorn, senior vice-president of Citibank, which issues Citicorp Travelers Checks. ''The market has become very competitive.''
Since the recession has cut into travel, however, the check market is not growing rapidly. The Nilson Report, a banking industry newsletter, estimates that check sales will grow only 3.6 percent this year, to $37.5 billion. ''What you've got is people fighting for market share,'' Mr. Terkhorn says.
As a result, banks selling checks are being lured with a bigger share of the check company profits. And companies are trying to take business away from competitors by offering customers new features.
''Everyone in the industry is trying to come up with product differentiation, '' says Terry Mock, senior vice-president of the Bank of America.
In May, for example, Bank of America began issuing checks denominated in pounds sterling and deutsche marks. Citicorp checks are now available by mail order to those with a special Bache Halsey Stuart Shields Inc. brokerage account. And American Express is trumpeting five free services for people who lose travelers checks, including cashing personal checks, canceling credit cards , and issuing a temporary ID card.
The banks that issue traveler's checks are also being courted. Industry sources note that American Express Company, the industry leader, long required issuing banks to remit one-third of the fee they collected from buyers. Now selected banks get to keep the fee.
American Express denies making a radical change to meet tougher competition. ''Our arrangements with banks remain essentially unchanged,'' says Thomas Cash, director of marketing services. He does note that ''for large sellers we also have sales incentive arrangements.''
But bank executives say that when Visa and MasterCard entered the check market they did so by offering banks a bigger share of check issuing fees and the interest earned on the float. Float is the total amount of checks outstanding and is, in effect, a loan from the check buyer to the check issuer which the issuer can invest and earn income from.
''We give (banks) 100 percent of the float and all of the commissions; we are operating as a nonprofit (organization),'' explains Russell Hogg, president of the Interbank Card Association. Interbank is the parent organization for MasterCard.
''With the introduction of Visa and MasterCard (there is) greater competition in the marketplace, and selling locations are demanding a greater share of the profits,'' adds Vincent La Paglia, a Visa vice-president.
As a result, longtime check issuers had to adjust their terms. ''Because of competition we are sharing more of the float,'' Citicorp's Mr. Terkhorn says. This more generous sharing comes at the same time the amount of float per check is under pressure as improved methods speed check clearing and high interest rates spur travelers to cash checks faster.
''The real winners have been the banks which are selling checks,'' says an executive at a major Midwestern bank, who requested anonymity.
Spotting winners and losers in the traveler's check battle is difficult, since no official industry statistics are published. But market leader American Express presents the biggest target. And Spencer Nilson, publisher of The Nilson Report, estimates that American Express' share of the market dipped from 54 percent in 1980 to 52 percent this year. Visa estimates American Express' loss at 7 percent, while American Express says it has not lost any share.
The amount of market gained by recent entrants is also subject to dispute. Visa entered the market in late 1979, and Mr. Nilson now pegs its share at 9.4 percent, up from 9.0 percent last year. Competitors place Visa's share at 10 percent, while Visa executives say they have 15.5 percent of the market.
MasterCard, in full operation in March 1981, has had trouble cracking the market, Nilson's figure show. He gives MasterCard no measurable share of the market. ''MasterCard hasn't gotten off the dime,'' says Mr. Terkhorn.
''We feel we have made good progress'' and are planning to sell $1 billion worth of checks in 1982, replies MasterCard president Hogg.