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November 12, 2013

Is Consumer Privacy Possible?

In January 1999, Scott McNealy, then chief executive officer of Sun Microsystems, told a group of analysts, "You have zero privacy anyway. Get over it." His comment caused quite a stir—at the time, most people had not yet heard the terms "big data," "data warehousing," or "data analytics."

I recently attended two conferences that had sessions on consumer privacy and data collection. All the panelists suggested that there is little data privacy for consumers anymore. And all agreed that "privacy is dead."

Four major forces have brought us to this point: technology advances, emergence of data aggregators, lack of transparency with consumers, and consumer complacency. The first force—advances in the technology of data storage—has created the environment for the other elements. The capacity of hardware to collect and store data has grown at exponential rates at the same time that the cost of that technology has plummeted. A cost analysis from Statistic Brain shows that the cost of storage per gigabyte of memory has dropped 50 percent every 14 months since 1980. Back then, a gigabyte of data storage was priced at about $438,000. Today, the price for storing a gigabyte is a mere nickel.

With the ability to store vast amounts of data so inexpensively, companies have built data warehouses to collect all types of data, ranging from government records to of consumers' product purchases at merchant locations Proponents of the data analytics business emphasize how their work can help identify fraudulent transactions through behavior anomalies and how it can help a company market more effectively. Privacy advocates express concern over how the information is used and the adequacy of safeguards to protect the data from unauthorized access.

Privacy advocates contend that most consumers have no real understanding of the information that is collected and how it is used. Indeed, disclosures are often hidden in fine print. Consumers often must accept the terms of a transaction to receive the product. How often do you click the accept box without reading the disclosure?

With support from the Federal Trade Commission, advocacy groups are working to get companies to make their consumer disclosures clearer so consumers will know exactly what information is being collected, how long it is retained, and who it is being shared with. They also want these data collectors to disclose how consumers can verify the accuracy of the information.

Are you interested in knowing what information the largest data aggregator company in the United States has on you? If so, go to Acxiom's website and scroll to the bottom of the page. You will need to register to look at your profile.

Although consumers themselves are the major source of the data being collected, many may not understand that the information they voluntarily provide on social media sites and through online browsing and purchasing activities is being tracked and collected. And consumers have consistently demonstrated a willingness to provide personal information to secure a coupon or discount.

In addition, with the increased deployment of smartphones, merchants are looking to use the mobile channel for one-to-one marketing. The success of this effort largely depends on knowing the interests of the phone owner. Such determination is made only through data collection and analytics—and these efforts are only going to intensify. This marketing element available through the mobile phone is seen as an advantage over other payment methods, and many are studying how to monetize it.

Even if the most transparent disclosures were available, do you think consumers would dramatically change their information-sharing behavior, especially when doing so would come at the expense of incentives? Or of not expressing their personal interests and posting events on social media sites? Personally, I do not think so. I believed McNealy back then and took his advice to get over it. What about you?

Photo of David LottBy David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

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