Let’s play the shell game to hide fees

Most of us applauded when the low cost airlines first arrived on the scene.  I say “most of us” as I am sure the management of various flag carriers were not very happy.

For the first time the customer could see a full break down of the fees they were paying – cost of flight, airport taxes, credit card fees and others.  They really drove innovation in a what was a cabal orientated and stagnant industry.

What do we have today?   Well, they now use this “innovation in transparency” to start playing “the shell game” with consumers and over-charge the un-suspecting.  The cheap airlines, understandably, will phrase this in other ways (or at least their PR machine will).

Examples I have come across (names withheld to protect the “innocent” although you can see an old personal blog entry on the subject here):

- when booking a return flight, the return leg is more expensive than if booked separately

- when booking with children, the fare is more expensive than without children

- debit card fees are marked up 1000′s of percent (I believe 5-10% of one airline’s profits are card processing fee mark-ups)

So, why am I discussing this on a Foreign Exchange site?

Well, our industry has traditionally relied on opaqueness to hide margins from customers (e.g. in forward points, not having a central “pricing venue” for smaller transactions etc.).

The industry is now at a point where we  need to go through the “transparency phase” – which, I am proud to say, is a move we are championing (see here) and getting great feedback from customers.

What we must learn from the “shell game airlines” is not to become what we set out to change.

Another One Caught with Fingers in the Cookie Jar

The recent Reuters article concerning the SEC in the USA expanding their probe into foreign exchange trading, did make me smile, “not another custodian caught with their fingers in the cookie jar”.

Now, Custodians are meant to be a conservative, safe and honest pair of hands to hold the assets of investment funds and the likes of you and me, so seeing behavior like this (relying on  opaqueness) does give cause for concern as this behavior is totally unnecessary.

There  is no reason (other than “it has always been done like this”) for a Custodian to rely on opaque FX pricing to make money.  The Custodian holds the assets and FX flows are generated by the assets (e.g. corporate actions on equities).  Therefore, the Custodian already has the flows captured so is guaranteed the revenue anyway!  It’s like having a pocket full of cookies and still raiding the cookie jar “because you can”.

So how do we fix the situation for both the Custodian and the client?

It is very simple – pricing, automation and transparency.

1. The Custodian and customer agree a clear pricing schedule

2. Automate trading of all FX flows in real time

3. Book each trade showing the customer rate and the mid-market reference rate

All three could be implemented using a platform like theCurrencyCloud.com – custom pricing for each customer / currency / trade size, automation of the FX trading, and all trades are booked with a mid market reference rate and the customer rate.

That way, the Custodian still gets the business (and can put their ethical hat back on again), the customer has a fully auditable FX trade history and the regulator can be certain that they will not be called in again – a win win all around!

This really should be a “no-brainer” for the Custodians, additionally they will save costs through automation and deliver better customer service.

Nigel Verdon, CEO and Founder, FX Capital Group