I expect you will agree with me when I say that one of the most annoying aspects of going on holiday is the way we get ripped off by the banks just because we wish to use some currency other than our own dear British pound.

What has made this even worse is that when paying by credit card we don’t really have much idea of how much we will end up being charged until we get home and receive our next credit card bill.

Last week I learned that an average of 3% is added to the value of each credit card transaction that we make in a foreign country. So if you buy, let us say an iPod in New York for $200 and the exchange rate is exactly two dollars to the pound at the time, you end up paying not £100 but £103.

Each year the citizens of the world use credit cards to pay for over $5trn worth of goods and services. About 4% of this is spent in foreign currencies and if you apply the 3% fee for the privilege of receiving a bill in your own currency the banks manage to relieve us of $6bn annually.

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This is a huge market and it is getting bigger.

According to the United Nations the annual number of travellers, measured by arrivals at airports, is now about 700 million each year. By 2020 this is forecast to grow to 1.6bn. Yes, more than double today’s number!

What that will do for global warming and the capacity of Heathrow airport I can hardly bear to think. But still you cannot blame people for wanting to travel and you certainly cannot stop them. These people will stay in hotels, they will go to restaurants and of course they will go shopping — indeed such is our knowledge of what things cost in other parts of the world that some overseas trips these days are for the sole purpose of shopping.

So growth of credit card use by travellers is assured, and on top of that there are now the possibilities of on-line shopping. Why not order a set of golf clubs from the USA and have them shipped over here if you can save money? All you need is to know is how much you will pay, and you would like to know this amount in pounds at the time that you make the transaction and not in dollars.

This is the market that is being addressed by Planet Payment, a £30m company with a quote on AIM.

Killer software

Planet Payment is an international multi-currency credit card data processor and its software is used by the banks and other processors who occupy the rather complex chain that is involved each time you present your credit card.

Essentially there are two banks involved, the bank that issues the credit card and the bank that receives the payment on behalf of the hotel, restaurant, shop or whatever (known as the ‘merchant’).

The first step is authorisation of the transaction; next, if the credit card is presented abroad, there is a forex transaction; then there is the payment; and finally there is the reconciliation and reporting both to the credit card holder and the merchant.

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To complicate matters further the banks and processors often outsource some of these functions, and this is where Planet Payment fits in.

Planet Payment’s processing system enables two things specifically.

One is a range of reports that can help merchants analyse their sources of business and customer habits. The second is ‘Pay in Your Currency.’ I have never come across this, but then perhaps I don’t travel enough. But if, for instance, you visit Saks Fifth Avenue in New York you will be offered the chance to either pay in dollars and then wait until you get home to find out how much your shopping has actually cost you — the traditional way — or else you can be offered a Sterling price then and there which will appear on your credit bill and will not be changed in the interim.

Not surprisingly the latter is fast becoming a popular option, especially as it can be backed by a guarantee that the Sterling price will be no higher than would have been the case under the traditional method.

Planet Payment offers a single software platform that can be used to process transactions from any part of the world and, having been expanding especially fast in Asia, it is particularly looking forward to the forthcoming Olympic Games in China.

Planet Payment sells to banks and processors, which then sign up merchants who are offered not only the various analytical reports but also the chance, which they never had before, to keep some part of that 3% foreign exchange fee.

The banks and processors are targeting international hotel and retail groups and already many of the leading names have signed up, and having done so they are unlikely to suddenly move away. So Planet Payment which takes a small cut on each credit card transaction is seeing a very rapid growth of its revenues with broker Canaccord predicting a quadrupling of the top line in just three years.

First profits are expected on 2009, and Canaccord has a price target of 170p — above the 112p at which they trade today and the 125p at which they were priced on their AIM debut in March 2006. If Planet Payment can maintain its pace of growth, then it could become a stock market high flyer. This is definitely one to watch.

Regards,

Tom Bulford
for The Penny Sleuth

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