Is Airbnb adding a foreign exchange charge to its guest service fee a missed opportunity?

Foreign currency exchange can be costly for travelers unless the business that serves them makes use of the latest competitive options on the market –and nowhere is this more true than when booking lodgings. For example, when booking a hotel room abroad, your credit card company will typically take a fee between 1% and 3% of total transaction value for enabling the cross-currency transaction. This expense is significant when the cost of your stay can easily go into the thousands of dollars or more. 

Many travelers try to save on hotel expenses and experience locations more authentically like a local by renting homes from sites like the popular marketplace Airbnb. However, using Airbnb won’t help you escape cross-border forex transaction fees. In fact, Airbnb announced last month that starting April 1, 2024 it will add a cross-border transaction charge of roughly 2% to its guest service fee for bookings made in currencies different from the host’s currency.  

Damage to Airbnb’s competitive advantage 

In this aspect, Airbnb is not any more competitive than the hotel industry. It’s more than likely that Airbnb is tied to a single source of liquidity, i.e. a bank, through which it routes foreign exchange transactions at uncompetitive rates. But it doesn’t have to be that way!  

Airbnb and third-party marketplaces like it, whether in hospitality or in other industries, have an advantage they are not fully utilizing – they are built on a modern technology infrastructure that can easily connect to application programming interfaces (APIs) to simply add services that they cannot or choose not to build in-house. 

And today, there exists APIs in the foreign exchange market that enable multichannel liquidity. That means instead of getting forex quotes from one financial institution, they are getting them from multiple institutions, drastically enlarging the pool of liquidity and reducing the spread between what the end user pays and the interbank rate. 

Protecting against marketplace FX risk 

If, as the site Rental Scale-Up suggests, the primary motivation behind Airbnb’s decision to add a forex charge is to reduce its risk exposure to fluctuations in foreign exchange rates between when a property is booked and when the host is paid, Airbnb can also connect to an API that enables hedging forex to lock-in currency exchange rates. This would be better at achieving the presumed goal of rebalancing foreign exchange risk than simply levying a 2% surcharge on guests’ bookings.  

At the very least, if Airbnb still needed to pass on additional costs to guests for cross-currency booking, the fee would certainly be much lower than 2% of the guest’s total stay. This would enable the marketplace and its participating hosts to continue being a nimble alternative to established hotels by offering more competitive pricing. 

Moreover, nothing is stopping any business dealing with thousands to millions of end-users from doing the same. So, if Airbnb doesn’t do this, eventually other players in the market can and will.  All that is needed are the basic engineering resources to connect to the relevant APIs. 

Okoora offers the answer 

Are your customers exchanging foreign currencies all the time? Do you need to protect their transactions from volatile exchange rates? Then you should consider okoora’s Banking as a Service (BaaS) APIs. With connections to the trading rooms of dozens of major financial institutions around the globe, okoora’s FX API offers expanded liquidity feature ensures clients receive competitive exchange rates 24 hours a day, 7 days a week. Meanwhile, the Outgoing Payments API enables users to lock-in future FX rates for payments.  To learn more about these and other APIs offered by okoora, go here.