While traveling to Copenhagen yesterday I was presented by the POS-terminals the option to pay my taxis and restaurant bill at the airport in the locale Danish Krona or in Euro. I found the information informative as it gave me a rough indication of what the price was of the services rendered but at the same time was uncertain what it would mean…. What option is better (as in cheaper): local Krona, or my own currency Euro? The option to pay in two different currencies alone made me uncomfortable and transformed a latent feeling into a pretty acute and disturbing one. My question of the day:
“Am I being ripped off this way or the other?”
When I asked the cashier lady behind the POS at the airport’s restaurant she urged me to use the local currency as it was cheaper.
What I was told by a little birdie whispering in my ear is that the acquirer of the payment is getting a nice kick-back – say 50% – from specialist firms like Global Blue that do the FX-conversion when the payer opts for its own currency. These specialist firms do nothing else then this conversion and put a nice conversion markup on top of it, a very easy profit indeed to the expense of the traveler.
Comparing two transactions within 20 minutes apart: For the FX exchange by PBS International a fee was added being 2,7% of the initial amount plus a 2,85% mark-up on exchange rate totaling a staggering 5,55% extra cost at my expense!
The FX – the conversion form the local currency into the currency of the account of the payer – would have been catered for anyway by default when paying in the domestic currency. So banking (pun intended) on the uncertainty of the customer/payer these companies just present a more expensive option that offers nothing else then a worse conversion rate but is indicated in the currency normally used by the payer. As said the acquirer – the company that processes the payment – gets half of these “proceeds” as a kick-back.
At airports personal are instructed, I am told by the birdie, that if a customer asks for what option to choose to direct the customer to the more expensive non-domestic option! (At least that did not succeed in my case).
This choice is offered based on the information on the payment card (credit or debit). Even though it seems the payer still has to make the choice (but lacks the information to make the right decision) this is an example of differential pricing. With the attempt to lure foreigners in to this situation banking on their fears and uncertainties about currency conversion and to instruct personal to push to the option worst for the payer this – in my view at least – is a malignant business practice. Do these guys have no moral problems in knowingly and deliberately ripping of others? Are there no laws and regulations in place to prevent these type of consumer rights violations? Are they in place but not enforced?
Today, the White House released a report titled, “Big Data and Differential Pricing.” The report examines the concern that companies will use the consumer information they collect to more effectively charge different prices to different customers.
The White House seems to think that current legislation should be able to prevent excesses. Looking at the above “use-case” I highly doubt that is the case…
Update 10 March 2015:
And I was complaining about 5,5%….
12,1% is huge friction cost to transfer payments for society. Disruption needed. http://t.co/hXUvdjWKWM
— Jan Willem Mars (@redplanetdust) March 10, 2015
Update 13 March 2015:
In Copenhagen Denmark the options were presented in this order:
- DKR, the local currency
- EURO, my home currency as a travelae.
In Vienna, Austria it is even more deceitful:
- The home currency of the traveler
- EURO, the local currency.
So a Brit, just in front of me in line of an airport take away, was perplexed: What to opt for? and then his own currency is the first option. What are the chances he will choose the expensive route? Criminals!
Update 5 march 2015:
As a reaction to this post I was sent this graph 😉