A devil lurks in the details of ‘hidden’ Airbnb charges

With this seemingly outdated map, Airbnb boasts of 2,000,000-plus listings worldwide. (Source: Airbnb)

7 easy steps that might save you money when using Airbnb

When I wanted to book an apartment via Airbnb for a forthcoming month-long visit to Bangkok recently, both the so-called host and I were mystified by a discrepancy between the price that was displayed in the listing and the higher price that he showed as the rate.

Including the company’s service fee, the listed total was significantly lower than the discounted price that he nicely offered me.  Both of us tried to learn why from at least two inquiries that he made and email inquiries that I sent to Airbnb.  Currency seems to be a major part of the solution to the mystery.

Only by clicking on the company’s “help” tab did I discover how important it would have been to heed the Airbnb’s policy when I had made many past reservations.  Other Airbnb so-called “guests” — that is, you — would do well to pay attention as well before booking an accommodation in a foreign country.

Typical Airbnb listing

Here’s the lowdown:

Because my American Express account gives me points and, naturally, does not require a commission for payments in U.S. dollars, I always have made the company my default way of paying for Airbnb rentals. Listings always appeared to me to be denominated in dollars, so it seemed like a good strategy for acquiring points.

My approach was, unfortunately, misguided.  As Airbnb explains in its help section, “When the currency you’re paying with is different from the default currency of the country where the listing or experience are located, we convert your payment automatically.”

Fine, but the price of ignorance is not cheap, and had I ever before looked at my online receipt on the company’s site, then to click on “details,” I would have known a long time ago about the extra cost.  Says Airbnb on its site:

The base exchange rate uses data from one or more third parties, such as OANDA. It’s updated regularly, but may not be identical to the real-time market rate. If you’re paying in a currency different from the default currency of the country where the listing or experience are located, we also charge a 3% conversion fee on your total cost; the conversion fee accounts for Airbnb’s holding costs and foreign currency risks.

My foremost issue is that the charge for converting currencies is in addition to the service fee added to each listing.  Airbnb explained to my host that “guests are being charged 6%-13.5% depending on the length of the reservation” as a service fee, more than a host is charged.  (Some news media have quoted those percentages for service fees — not currency conversions — as well.)  Of course not every rental will require a currency conversion; in the event one is required, showing that extra charge as an add-on makes sense to me.

When I have a credit card charged for something purchased in a foreign currency, I always use my Visa account, which purportedly entails no commission.  For my Bangkok reservation, it seemed to follow that I should have changed my preferred currency from dollars to baht and should have switched my payment method from American Express to Visa.

Before doing so, I checked whether both changes were possible.  Here’s what the Airbnb’s “help” tab says about the likelihood of success:

Can I pay with any currency?

No. The currency you pay in is controlled by your payment method and, in some cases, by your country. It’s not possible to manually choose what currency you’ll use to pay.

When you select your country and payment method on the checkout page, the currency in which you’d be charged will be clearly displayed before you confirm your reservation request.

Various methods of payment are accepted:

• Major credit cards and pre-paid credit cards (Visa, MasterCard, Amex, Discover, JCB)
• Many debit cards that can be processed as credit
• PayPal for select countries
• Alipay for China only
• Postepay for Italy only
• Sofort Überweisung for Germany only
• iDEAL for the Netherlands only
• Boleto Bancário, Hipercard, Elo, and Aura for Brazil only
• Google Wallet for US Android App only
• Apple Pay for iOS App only

Although I reside in Cambodia and have a U.S. mailing address, I did decide to try changing my preferred currency to Thai baht.  It worked  — sort of.  While I managed to record my currency preference, Airbnb ignored my wishes.  That is, after all, what the company says it can do depending on one’s country.

However, it apparently doesn’t much matter where I live with respect to currency.  In my email exchange with Airbnb, I finally learned that my actual residence is beside the point:

When you are making payment for a reservation it depends on where your bank is in relation to the currency you will be charged in.

After I changed to Thai baht, the numbers my host and I were seeing still didn’t match, not by much, but by more than a few dollars.

It has been all but impossible to figure out whether we were looking at the oranges of just the rent that he sought in comparison with the oranges that I was expecting to pay for the rent alone.   We couldn’t decide whether we were looking at oranges to oranges, apples to apples (the bottom line including, for example, Airbnb’s service charge) or apples to oranges.  What I do know is that we were as much as $68 apart.

After my host changed the listing to give me an extra discount, I still seemed to be paying less than he intended.  My cost before he lowered the price a second time (after his standard monthly discount) was showing as lower than the price after my host cut the rate again. Thankfully, the apartment owner is exceptional, and he generously offered to split the $68 difference and throw in a major portion of the anticipated electric bill.  I gratefully agreed to the arrangement.

The dollars aren’t going to change my life or his, I am sure, but the point is that both of us remain confused.

In her last of several prompt emails to me, Airbnb’s “Sonia R.” did her best to explain the discrepancies, though I don’t think she succeeded:

Okay so with the pricing when the Host sends you a messaging saying that they are willing to only charge you a certain amount this will never be the amount that you will see what ever the Host says you have to add all the fees on-top of this before you get your total Guest service fees between 6-12% conversion fee 3% Also the Host will see the amount they will be receiving minus their service fee.

So I think the confusion began when the Host sent you a special offer the only thing I can think of is that if they have a weekly or monthly discount they did not take this into account and then when you check the dates on the site there was a cheaper price showing as the discounts are automatically applied.

When the currency in which you’re paying is different from the local currency of the country the listing is in, Sonia points out, “we convert your payment using one of our exchange rates.” She adds the following:

– We use the adjusted exchange rate if your payment currency is supported by Airbnb, but differs from the local currency of the listing.
– We use the base exchange rate in all other cases when we need to convert your payment to the listing’s local currency.

My host listed his property in Thai baht.  I ultimately reserved the apartment in Thai baht, which is how my host indicated the price when he created the listing on Airbnb.  For some reason, Airbnb pays him in euros.  I imagine the company collects a 3 per cent commission for converting from or dollars to euros or baht to euros, but it is not clear to me.

Since I paid in dollars, it looks to me as though Airbnb could have made money at least twice — from baht to dollars so as to charge me according to my mailing address in the U.S. and then from dollars to euros or baht to euros.  If the host wants either baht or euros, who knows what additional charges he may face for conversion via Airbnb or a currency exchange facility.  (Maybe he receives euros because of his mailing address.)

In any event, my advice is to try the following when making an Airbnb reservation in a country other than your own:

1. Go to your photo at the top right of the Airbnb page after you log in and click on the “Profile” tab that appears in the bar running along the top.
2. In the dropdown menu that appears, click “Edit Profile” and then scroll down to “Preferred Currency.”
3. Select the currency of the country to which you are traveling using the dropdown menu and remember to change for subsequent visits to other foreign countries. (Since you’ll always see prices in what you indicate is your preferred currency, remembering will be easy.)
4. Go back to the top bar and click on account.
5. There, click on “Payment Methods.”
6. If you have a credit card that doesn’t charge you a commission for currency conversions — you should obtain one if you travel to other countries and have yet to acquire one — add that card in the event you are not already using it with Airbnb.
7. Select the added card to make it your default payment method and then search.

It is galling to me that Airbnb is headquartered in San Francisco, 50 miles from my mailing address.  Why couldn’t we communicate our part of the transaction in the dollar equivalent of baht for my convenience without actually changing from one currency to another and then initiate the currency conversion one time, into the currency that the host requires?  In my case, it would not be dollars to baht and baht to euros but from dollars directly to euros.  Maybe I’m missing something, and perhaps it is profit.

As the email to my host notes, guest and host each pay a service fee, which Airbnb says on its site “helps cover the cost of running our site and services.”  Apparently, “helps” is the operative word, leaving out the sizable benefit of currency conversions.

Airbnb’s headquarters.  (Source: Airbnb)

According to the New York Times, the eight-year-old company — which is currently valued at $30 billion — lists nearly three million short-term rentals in more than 34,000 cities around the world.  One online source puts the average number of nightly stays at 500,000.

Let’s say the average reservation runs a guest $100.  Let’s then speculate that half of Airbnb’s nightly listings are in foreign currencies.  If true and if the commissions for both sides total 6 per cent, the crudely calculated income from currency conversions might be $1.5 million ($3 plus $3 x 250,000 stays) a night.

Multiply $1.5 million times 365 days, and that revenue alone comes to nearly half a billion dollars. I suspect my estimate is both way high and nonetheless illuminating.

The following information reported in the San Francisco Business Times gives some context to my calculation, however wrong it could be:

Despite some recent legal turbulence, Airbnb’s revenue soared 89 percent in July 2016 relative to the same time last year.

The data comes from a report from e-commerce analytics firm Slice intelligence, which gathers its data from e-receipts. Slice does not disclose revenue figures, only revenue growth. In June 2015, however, Airbnb reported that it was on track to hit $900 million in revenue by the end of 2015. Based on that estimate and Slice’s report, the company could be hovering near $1.7 billion in revenue.

I have no one but me to blame for having failed to dig into the details over the years, and I do want to acknowledge that Airbnb generally has proved to be my overwhelmingly positive choice for stays longer than a couple of days.  While conceding that the company is pretty transparent about how it works, the currency costs become clear only if you bother to investigate.

The currency side of its business must add up to an enormous sum, and I imagine that is why the company hews to rejecting one’s preferences.  The currency risk that Airbnb mentions above is relatively slight, though indeed real.

Now, I am wondering just how much more the company might be making not only from currency speculation,  I would love to know how big are the investment returns on the float between the time that a guest makes a reservation and the host is paid — in my case, months later.  The claimed “cost” that Airbnb cites strikes me as ephemeral.

What  a business model!

Email: malcolmncarter@gmail.com