The government has announced that it will enable open banking by introducing a new Consumer Data Right in the sector. The energy and telecommunications sectors are likely to be next.
While the government rightly states the Consumer Data Right “will improve customer choice and convenience by allowing data to be shared with third parties”, there are significant privacy risks.
The top-line privacy risks from the Consumer Data Right are obvious, with considerably more personal data flowing between companies. But the real risks relate to de facto economic coercion.
Gaining access to more data from more consumers will allow banks to individually tailor services and deliver better and more targeted goods at lower prices. But we will pay for these better services with our data, and hence our privacy. This gives many of us a choice of two currencies: dollars or data. This impacts all of us, and if Australians see privacy as a right, this trade-off is unacceptable.
For all that the Open Banking Review states that “open banking should require informed, explicit customer consent’, the need to pay this week’s bills will be a powerful incentive for many Australians to give up their privacy.
In practice the Consumer Data Right will penalise people who want to protect their privacy. If other people choose to share their data – and you choose not to share yours – you can end up paying more for the same service. This means you pay for privacy. And if you can’t pay with dollars, you’ll pay with data.
Banks want to maximise their profit from each customer over time. But they know that excessive fees contribute to customers moving on, so they price their services as highly as they think consumers will pay.
More data lets banks personalise pricing, charging individuals the most that they will pay. Without data, banks will provide an undifferentiated cost based on the average cost to serve customers and the average revenue per customer. With data, banks can assess the cost of serving individuals, and offer targeted deals to reflect this.
The potential for better deals is an incentive for individuals to share data. But not everyone gets these deals. Only people whose data demonstrates that they are more lucrative than average customers will get the better deals.
The challenge with this incentive structure is that businesses can assume that people who don’t share their data are either not price-sensitive or have data that demonstrate they are more costly to serve than the average customer. They then rationally either increase prices or refuse to discount prices for non-disclosers. Throughout this divergence, the average data non-sharer will become increasingly costly clients to serve, and be charged accordingly. Thus an increasing number of people will have a financial incentive to share their data.
This puts a price on privacy for a third group of people – those who are unwilling to share their data for privacy reasons. They must figure out the price of privacy. Am I will to forgo an element of privacy for $50? $100? $500?
Privacy becomes a premium product. For those with less money, there is little choice but to pay with privacy to access the products and services that underpin modern life.
The Consumer Data Right model makes sense. I give you my data, something of value, and you give me a benefit. But accepting that data, and therefore privacy, is a commodity rather than a right shifts our understanding. It may put privacy out of reach for people without the means to pay, creating a de facto obligation to disclose. We should not ignore the risk of coercion that flows from apparently having greater control.
If Australians assert a right to privacy, we cannot let people be priced out of privacy. Increasingly, we are accepting improved services and lower prices without considering the cumulative impact on privacy. This can be a valid trade-off, but at present we are making it without an informed debate.
This is an important question for the government to consider as it legislates to make the Consumer Data Right a reality.
This opinion piece was originally published in The Mandarin on 27 February 2018.