Nickel-And-Diming Industrial Complex

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In my first job in the IT industry, I used to sell servers, personal computers, printers, and other hardware equipment to the SMB market. My territory included the textile market in the Kalbadevi district of the then Bombay.

One of my prospective customers was a yarn merchant. Somewhere during our discussions about the features of the PC I was shilling, he let it drop that he owned owned a penthouse in Warden Road, then – and now – the most expensive housing real estate market in India. If this was meant to assure me that budget was not a constraint, it worked. After being satisfied with the technical details of my product, he moved to negotiations. He proudly mentioned that he got 0.5% discount in the past but warned me that that won’t suffice now.

I was perplexed. According to standard industry practice and my company’s sales policy, 10% discount on the list price was common. While I could easily give him 10% and close the deal, it struck me that, in the yarn trading business, margins are wafer thin and even 0.5% is a lot of discount.

I told him I could go up to 0.75%. He balked at that and demanded 1%. I asked, only half-jokingly, why someone who owned a penthouse on Warden Road was bargaining so fiercely over a quarter percentage point – implying that, at his paygrade, the difference between 0.75% and 1% ought to be immaterial. He said something that has stayed with me forever: “It is by negotiating like this that I’m able to afford a penthouse in Warden Road”.

This was my first encounter with Nickel-and-Diming.

At the time, nickel-and-diming happened only in trading businesses and so-called lala companies. For the uninitiated, a “Lala company” is an informal term used in the Indian corporate world to describe a traditional, family-run business that is owner-driven rather than professionally managed.

But, during the next 40 years, the practice has spread to large MNCs and entered the playbook of billionaires and oligarchs. Let’s see a few modern world examples of nickel-and-diming.

1. Uber Cancelation Charges

Uber fines the Rider even when the Driver cancels. Few Riders jump through the hoops required to claim the measly  refund. And the rideshare major worth $250 billion pockets the 50 cents.

2. Jeff Bezos Legal Fees

Michael Sanchez, the brother of Jeff Bezos’ then girlfriend, sued Jeff Bezos for defamation. A judge threw out the lawsuit. Jeff Bezos incurred $1.7 million in legal fees.

With a networth of $271 billion, Jeff Bezos is one of the three richest persons in the world. That didn’t stop him from seeking $1.7M damages from his now brother-in-law.

3. Ryanair Seat Fee

Ryanair pioneered the practice of charging for checked in baggage, use of toilet, etc.

According to rumors 15 years ago, the Irish budget carrier proposed standing-room-only on short-haul flights, with seats available at an extra cost. Apparently, the EU aviation regulator vetoed the airline’s egregious attempt at nickel-and-diming.

These rumors are back again. Ryanair has denied them, clarifying that the Skyrider upright-seat concept posted by people on X fka Twitter and Instagram is only a prototype / concept and not an approved commercial airline seating system. Let’s see how this movie plays out.

Then there’s the sharp practice of selling cheap air tickets for remote airports that are misleadingly called by their closest city names. Take Frankfurt Hahn (HHN) for example. It’s situated nearly 100 kilometers away from Frankfurt city and its main airport (FRA) (see footnote 1). The London-Frankfurt ticket might cost peanuts but the taxi from HHN to Frankfurt will cost a bomb – even the coach service might cost more than the air ticket. This is not exactly a case of nickel-and-diming and I’m not sure if it was pioneered by Ryanair but I’m just putting it out there since it somehow seems relevant in the current context.

4. VietJet Empty Seat Fee

On long-haul flights, many of us have seen vacant seats next to us, lifted the armrests, and sprawled across two or three adjacent seats.

If you do that on VietJet Air, you might be woken up by the flight stewardess carrying a POS terminal telling you to cough up money for the empty seat(s)! The flagship carrier of Vietnam brands this product / service “SkySpace”.

Not sure how much the empty seat costs. Since VietJet is a budget carrier, I wouldn’t be surprised if the empty seat costs as much as a normal seat, so this could be a case of you nickel-and-diming the airline for the primary seat and the airline nickel-and-diming you for the empty seat!

#ProTip for Cinemagoers: Many higher-priced seats in multiplexes are often empty. You should be careful walking up the aisle and sitting on unoccupied premium seat lest you get a bill, or, worse, find your credit card automatically charged for the differential ticket price!

5. Banking Fees

The banking industry is arguably the OG of nickel-and-diming. In fact, it was from a banker that I heard this expression (see footnote 2).

There are many examples of this practice among financial institutions. I can readily think of three of them.

  1. Banks will mention the amount payable in a credit card statement to two decimal places e.g. 23561.48 (in any currency). Many credit cardholders miss the .48 and pay 23561. The bank treats this as short payment and slaps interest not just on the actual outstanding amount of 0.48 but on the entire 23561.48 and all charges incurred on the credit card until the first bill that the credit cardholder settles in full in the future. Around ten years ago, I urged banks to stop nickel-and-diming in order to boost credit card use. They have not taken my unsolicited $0.02 but have still achieved a manifold increase in their credit card business! But I digress.
  2. Some banks levy a fee for issuing cheque books on savings accounts. I’ve heard of one bank that charges a non–trivial fee for every cheque leaf on a current account product (see footnote 3)!
  3. Then there’s overdraft protection fee. This is the $25-35 charge levied by American banks for allowing transactions made by customers to go through despite not having sufficient balance in their accounts. Click here and here for more details.

As an aside, many fintechs promised to eliminate junk fees and hidden charges and thereby disrupt traditional banks. Not sure how well it has worked out for them. Last I checked, fintechs stopped chanting the bank disruption mantra and were trying to strike partnerships with traditional banks to ensure their survival. Tch tch…

What began as nickel-and-diming by small businesses has, over four decades, evolved into a sophisticated monetization playbook followed by multinational corporations and billionaires alike. In keeping with that, this practice warrants a more grandiose name.

Let me go with Nickel-and-Diming Industrial Complex.

If you know more examples of NADIC, please let me know in the comments below. Thanks in advance.


FOOTNOTES:

  1. This is like having a Mumbai airport in Talegaon.
  2. Although he mentioned it in the context of a very reasonable quote we submitted to him for a change request!
  3. INR 150 – more than nickel-and-dime, I know.