In response to regulation limiting banks' fees, banks plan to replace their lost revenues by selling consumers' shopping habits and data. If you consider how you currently use your debit cards, banks are able to collect an amazing amount of data about where you shop, when you shop, and how much you spend on various types of items.
If you are like most people, you use your debit card to pay for everything: food, clothing, entertainment, travel, medicine, doctor's visits, liquor, and more. Combine that data with your phone calling patters and the geo-locations in your smart phone, and its a comprehensive database of where you go, when you go, where you shop, what you buy, and how much you spend.
CNN Money reported:
"Merchants pay banks an average fee of 10% to 15% of the purchase price of a product each time a customer uses a discount that's generated from the bank's data, according to Cardlytics, an intermediary that works with both banks and retailers. Typically, the bank takes a 25% cut of that fee and pays the rest to an intermediary, like Cardlytics. So if a customer buys a $1,000 couch, the merchant pays a fee of up to $150 to the bank and the bank walks away with $37.50."
How the new deals will look to consumers based on the consumer data collection:
"Say you use your Citi-issued debit card to buy a pair of shoes at Nordstrom, and then Citi sells that information to a series of retailers. As a result, you receive a coupon from Macy's for a 20% discount on shoes at its store. The coupon is delivered by Citi, however, not from Macy's. To redeem the coupon, you must respond by text, e-mail or by checking off a box next to the offer on your online bank statement. Once you go into Macy's to buy the shoes, Citi will retroactively credit your account for the 20% discount."
Anytime I read a phrase like, "retroactively credit" alarm bells go off. I want to know how quickly the credit is applied and what might affect the timing or amount of the credit. That means reading the fine print for any cardholder agreements.
Some consumers like the deals and discounts they get for giving up personal information and privacy. Experts speculate that some consumers make prefer these deals over those available at online social networking website deals, like Groupon.
If you read this blog regularly, then these new fees should be no surprise. How did we get to here? Banks already compile databases about your spending with your credit cards. Learn more about the history of how banks made money from credit cards.
After banks raised the interest rates on credit cards in 2009, many consuemrs shifted their purchases to debit cards. Then, banks increased fees on a variety of actions, such as checking account overdrafts. After many consumer complaints, the U.S. Congress resopnded with legislation limiting the feeds banks can charge for debit cards and credit cards.
You could call this latest move by the banks an escapation in the race to get your money, versus you keeping your money.
As I see it, it all boils down to consumer choice: you decide how much of your personal information to disclose, and for what in return. Your shopping purchases and habits are definitely personal information. A discounted product isn't a "savings" as you still need to spend money. Remember, the debit-card shopping data collection by many banks will happen whether you take advantage of these new deals or not.
What consumers can do if you don't like the data collection:
- If you want to keep purchases private, use your debit card at ATM machines to withdraw cash and shop with cash at retailers. There there is no shopping data attached to your debit card.
- Move your money to a local bank or credit union with better service and more favorable privacy terms
- Be a smart shopper with mobile banking and "mobile wallets" -- purchases made with your smart phone. First, make sure that anti-malware is intalled on your smart phone. Second, only install trustworthy apps that have privacy policies. Otherwise, leaky apps will compromise your personal information and money.