What’s the relationship between Surveillance Pricing and Open Banking?

Economist Robert Reich and Lina Khan, former chair of the US Federal Trade Commission, released a short video in June on Surveillance Pricing, based on FTC’s research while Khan was in charge during the Biden presidency.

Surveillance pricing refers to the practice of companies using customer data and their online behaviour to set prices in ways that maximise revenue. It is as Khan explains, like going to a store to buy a TV for $500, only to see customers next to you get the same TV for $400 or $350.

Companies are able to do so thanks to tech which is able to harvest the data that devices continually stream out to build unique, comprehensive profiles of individuals – which data brokers then sell to retailers to fix prices based on consumer needs, quirks and weaknesses. Khan says that data brokers are able to use your location, race, income level, past online purchases, browser history and “even mouse movements on a webpage” to predict your “pain point,” the “highest amount of money you’re willing to spend on a good or service.” And because this is an online experience, customers may not even realise they are being charged more than others.

The impact of this technology is quite profound as it de-democratises shopping as a shared, uniform experience, with potential implications for politics and society at large. What would a world look like, for instance, if everything from everyday groceries to luxury cars was priced differently for everyone? How would it be possible to even conduct a conversation on the cost of living in circumstances where inflation itself becomes a highly-individuated experience?

In more immediate terms, weaponising one’s data to inflict higher costs on consumers seems like a deeply unfair use of transparency that technology enables, in the name of convenience. The FTC says that a consumer profiled as a new parent may “intentionally be shown higher priced baby thermometers on the first page of their in-app search results, based on their residential zip code and time of cart-adds.” Khan says a consumer could potentially get a higher price ticket to travel if they were to get an email detailing funeral arrangements for a loved one.

Some of these practices have already been rolled out. “In 2012, travel site Orbitz steered Mac users to pricier hotels, after learning that they tended to spend $20 to $30 more per night” (and subsequently stopped after being found out). The Princeton Review reportedly charged more for test prep services to online customers from ZIP codes that contained a higher percentage of Asians. Studies of surveillance pricing have found different consumers being charged differently for the same online product across industries “including transportation network companies, online test preparation services, office supply retailers, broadband internet services, and travel vendors.”

Lawmakers in the US are trying to respond and have introduced bills in California, Georgia, Illinois, Colorado and New York to set rules about surveillance pricing or ban it altogether. Such bills are facing a pushback from business groups who argue that they use people’s data to lower prices and offer discounts. But offers of low prices and discounts may not counteract the resentments (directed at business and each other) generated by everyone getting a different price for the same product. Consumers may be open to use of data for modest gains but not at the expense of overturning a shared, equal experience at the marketplace.

What does all this have to do with Open Banking, which also depends on connecting to consumer data to offer a range of financial services?

On the face of it - nothing.

This is because Open Banking’s consent protocols are fairly different. A consumer has to explicitly consent to the use of data (rather than being unknowingly farmed); consent is time-bound and not open-ended; it is specific, i.e. wanting a particular type of information and not hoovering everything; it is purposeful, aiming to deliver a service to the customer and it is non-transferable, not something that recipients can share with others.

Proponents can argue that Open Banking has very different effects as compared to surveillance pricing. The fact that consumers can share personal data to shop around for a better price during a limited time as opposed to being offered a price based on general browsing history, forces institutions to offer customers better value.

In tangible practice, surveillance pricing involves a vendor setting a price on the basis of what they have learned about you, while Open Banking initiates competition among different vendors based on the data that a customer chooses to share for a limited period and purpose. Open data, in this reckoning, offers the customer portability not business lock-in.

Surveillance pricing has wider institutional effects on the Open Banking industry though. The industry’s growth depends on increasing adoption among customers – it amounts to a cultural shift about the voluntary sharing of data, which in turn depends on the trust environment in which it is embedded. Surveillance pricing undermines that trust in the way it handles data thus posing a reputational risk for technologies such as Open Banking – at a juncture when customers are getting over their squeamishness about financial dealings online. This change has had much to do with the development and public messaging about encryption technologies, which served to allay concerns over security – but practices like surveillance pricing serve to reinforce suspicions about the leaky nature of online engagement and its vulnerability to misuse. And that in aggregate terms could curtail the adoption and future of Open Banking.

Want to understand how open banking actually works in practice? Check out our Open Data Dictionary for jargon-free explanations of everything you need to know.