Privacy #2: The Business Connection

We think of the tendency to collect as much data as possible about individuals, and then finding ways to make money from it, as a phenomenon of the Internet Age. Wrong, writes Rahul Matthan in Privacy 3.0. It started in the 1840’s!

 

Around that time (1800’s), as towns and cities grew in size and populations, a new problem arose: who was a safe bet to lend to? An American named Lewis Tappan came up with a solution. As a lender, he started keeping careful records of his borrowers’ repayment history and thus their creditworthiness. As his data set grew, fellow merchants would check with Tappan whether their customers were “good for their word”.

 

Tappan spotted a business opportunity in this:

“He began to publish his credit ratings in digest form, selling it to tradesmen all over town.”

He had invented the credit rating system. He simplified it further by assigning a simple alphabetic grading system – A, B and C.

 

Inevitably, the same system was copied across other US cities began to create similar rating systems. As their numbers grew, so too did the competition among these rating companies. How was any rating company to stand out? The answer was to collect more and more information about the customers:

“(This included) information that, while not directly financially relevant, was nonetheless indicative of their ability to pay.”

Married men were more responsible than bachelors. Those with medical conditions were greater risks. You get the idea.

 

Over time, concerns over privacy rose. And so the rule of asking for consent came up. This involved explaining what data was being collected, and to what purpose it might be used. Customer consent had to be obtained first. Then, as it is today, customers rarely stopped to understand the end to end consequences, and just signed such consent forms mechanically…

 

The consent model is totally useless for today’s era, writes Matthan:

“When computers and networked databases began to insinuate themselves into commercial life, the volume of information that these organizations could collect and process increased exponentially.”

 

Inadvertently, Tappan had set the model for things all the way to the present! He had chosen to sell the directory ratings of customers to other businesses. After all, it was businesses that valued knowledge about their customers:

“It is thanks to this initial business choice that personal information has, since then, been treated as a commodity that is collected and processed by businesses and used in ways that are beyond the ability of the individual to influence.”