Doug Steiner is CEO of Evree Corp., a Toronto-based financial-technology company
How much information have you given Facebook about yourself? And what stories does it tell – about your friends? Your associations? Your purchase behaviour? Your future purchase behaviour?
Financial institutions are wondering the same thing. Many banks, wary of the impending march of the world’s biggest technology firms into their businesses, are exploring how to better collect and analyze data about our personal financial behaviour. As consumers, we should be wary of their ability to use our own financial data against us.
Banks are right to worry about technology companies and the advantage they have. Pundits talk often of the potential of consumer-facing tech companies to revolutionize banking. Amazon already lends merchants money for inventory. Apple already receives interest on more than US$200-billion of its cash lent to institutions through the purchase of T-bills and corporate bonds. It’s not hard to imagine how easily a technology firm could subsidize retail-banking services in exchange for the data it collects. After all, that’s exactly how we pay for other seemingly “free” services: maps, directions, e-mail, overnight shipping, the list goes on.
Could Google do a better job with my finances than my bank? It certainly knows a lot more about me than my bank does. By some estimates, Google stores several gigabytes of information about each and every user. That includes their desires, tastes and intentions and likelihood to make a host of future purchases.
Now imagine combining that data with your bank-account balance and your holiday spending habits. Armed with that information, would any financial institution choose to help you pay off your credit card? Not likely. It makes better business sense to upsell you on more products and services.
Information about our future purchasing intentions is already worth billions of dollars to the large companies we visit on the internet. The danger in trading our personal data in return for free or discounted services is that we don’t truly understand it’s real value. This problem has been irking some very prominent thinkers, such as augmented-reality pioneer Jason Lanier and Stanford University academic Leonard Goff, who argue that we, as individuals, have no intelligent way to value the data we are giving away about ourselves. Without that knowledge, we are easily exploited; we don’t know who is helping or hurting us.
Earlier last year, U.S. regulators came down hard on currency firm FXCM, who had analysed their clients’ trading behaviour and then allegedly used the information to trade against those who showed a greater propensity to lose money trading. The way they saw it, they were simply making the money clients were losing. Others saw it as a clear conflict of interest.
Canadian financial institutions are looking to get in on this personal-data action. Apps such as TD Bank’s MySpend and RBC’s Nomi appear to feed back simple reviews of our spending habits, based on transaction data our banks are already collecting. A number of banks have projects that are analyzing client account transactions. There are no clear rules on what banks can do with this information. Do you own this information or do they? In Europe, recent laws have made it clear that data belong to the individual, who has the right to use it as they see fit. Canadian lawmakers are researching the issue.
One possible benefit of all this is a nascent movement to get consumers to the bargaining table to change habits. Canadian firms such as Drop and Carrot Rewards are rewarding clients who give them information through direct financial incentives. Carrot is actually paying consumers as they learn more about their personal health. Drop is learning your spending habits with merchants by analyzing transaction data, then finding competing brands who will give you cash to attract your business. It’s a crude start to people valuing your loyalty and habits. Perhaps rewarding financial health isn’t far behind.
Customers should demand choice about what information their financial service provider can use; and this includes traditional financial institutions, as well as any new tech upstarts. With all their access to our personal information, our movements, our credit history, financial firms have an enormous responsibility not to use our information to pad the pockets of shareholders, or cause more financial anxiety for consumers.