No, it's not about simply making a fair profit for a real service. Customers know that paypal needs to make a profit from each transaction, but this is different, because paypal labels it an "exchange rate," not a fee or markup, and says it's for the benefit of "locking in" a set (but artificial) exchange rate. In my case, it was over 5% higher than the mid-market rate (for British pounds)--most credit card companies markups, for example, are between 1 and 3%. The claim is that by the time the transaction goes through, the current exchange rate may be different, so it's like offering you insurance against this possibility. But major currencies rarely change much over the course of a few days (and it could just as easily change in your favor). But they know that most people don't know this, nor understand that they're about to pay an inflated exchange rate.
I've seen some of the less reputable airlines using this scheme when you buy airline tickets, and they don't explain it either, but at least they give you the option to decline it--I didn't see any option to decline this wonderful offer in the checkout process, so instead I declined to use paypal.
