philosecurity

The motto on the very first official United States coin was “Mind Your Business.”  Designed by Benjamin Franklin in 1787, the front of the coin also bore a picture of the sundial with with word Fugio (Latin, “I fly”). Franklin was fond of aphorisms, and the design has been taken to mean, “Time Flies, Mind your Business.”  Franklin’s message was at once sound economic advice and an assertion of privacy.

My, how time flies. A little over two hundred years later, it’s difficult to conduct business privately.  “American Express knows everywhere I go, how long I stay, where I eat, how much I pay,” said security consultant Jonathan Ham. “They could reconstruct my activity on a day-to-day basis.”

Our entire system for conducting financial transactions has changed– and the collection, trade and analysis of detailed personal information is now an enormous component of everyday payment processing.  During 2006, there were 93.3 billion non-cash payments in the United States, meaning third parties were involved in transactions 93.3 billion times. Non-cash payments have increased an average of 4.6% each year since 2006. (Federal Reserve, 2007) There’s no direct way to measure the number of cash transactions, but estimates indicate that the usage of cash in the US is decreasing.

Due to the extreme importance of credit scores, Americans are strongly pressured to use credit cards and build up credit, at the cost of our privacy. Without a credit score, it’s very difficult to buy a house or car, and companies charge far more for insurance. Personal credit checks are now standard for renting apartments, buying houses and many other basic needs.  “They are using FICO scores to evaluate job applicants!”  wrote my father recently.

Personal transaction monitoring goes far beyond credit reports. Financial institutions routinely track and profile customers’ daily habits. A few months ago, I drove cross-country and found myself using my credit card a lot for gas purchases. In the middle of South Dakota, the card suddenly stopped working. I called up the card company.

“Well, you need to notify us if you’re going to be traveling,” admonished the American Express representative.

Like hell, I thought. Notify American Express every time I want to travel? Who do they think they are, my nanny?

Of course, American Express has an undeniable business interest in rabidly tracking card use. The system (which they have created) is ripe for abuse and fraud. As Matt Knox said, “When I use a credit card, the security model is the same as that of handing you my wallet and saying, ‘Take out whatever money you think you want, and then give it back.’”

To compensate for security weaknesses in their own system, financial institutions conduct extremely detailed, real-time monitoring of customer purchases and locations.

Financial institutions also profit from selling and trading personal payment histories. For example, credit card companies sell detailed personal purchasing records for the purposes of marketing. “Privacy restrictions… would require businesses to send significantly more catalogs to obtain the same response rates, and the resulting increase in cost would be passed along to consumer.” (Turner, 2001) Credit card companies routinely profit from selling personal consumer information to third parties, who use the data for targeted advertising.

If financial institutions were not able to reap financial gains from selling personal information, and if they were forced to compensate for systematic security weaknesses out of their own pockets, there would be economic incentives for them to create electronic payment systems that are genuinely more secure and require less monitoring.

Personal financial histories held by private companies are also routinely accessed by the government. Many people are concerned that this access has been abused. “Bipartisan groups in Congress are pressing to place new controls on the FBI’s ability to demand troves of sensitive personal information from telephone providers and credit card companies, over the opposition of agency officials who say they deserve more time to clean up past abuses.”  (Johnson, Washington Post, 2008)

What would Franklin have thought of our modern third-party payment and credit systems?

As it happens, the fledgling United States was completely ripped off by the manufacturer of the first official penny. At the time, the United States didn’t yet have a national Mint, so they outsourced currency production to James Jarvis of Connecticut, who had bribed the head of the Treasury board with $10,000 for the contract. Jarvis was supposed to produce 300 tons of pennies, but ultimately only produced four tons of slightly underweight coins. Furthermore, a congressional report stated that “Jarvis had received a large quantity of federal copper but had only paid for a small portion.” (Louis Jordan, University of Notre Dame)

Would tighter financial monitoring have ensured that the original contract was awarded based on merit rather than a bribe? Would a credit check have helped our fledgling nation avoid making a bad loan? Quite possibly.

Then again, payment is deeply tied with freedom to travel and other fundamental liberties. Anyone who has had their credit card frozen while traveling understands the power that global payment processing companies hold over individuals. Due to the extreme importance of a credit score, Americans today are strongly pressured into using credit cards, which result in the intimate details of our daily purchasing habits being sold and exploited. Fundamentally, we are being forced to choose between our privacy and essential needs such as a house.

Our founding fathers never experienced loss of personal privacy at the scale that we see today, and probably could not imagine a system in which even their daily grocery purchases were tracked and analyzed. If they had, they might have pointed out that privacy is fundamental to freedom, and freedom comes at a price. Sometimes the price of freedom is blood, sometimes it’s money, and sometimes it’s the convenience of “instant credit.”