It’s become a cliché that “data is the new oil.” Now the Federal Trade Commission wants to find out if huge troves of consumer data married to artificial intelligence and related technology is making the wheels of commerce slippery.
Sophisticated technology has spurred the development of “surveillance pricing,” in which different people are charged different prices for the same goods and services, based on their tracked, observed behavior. (One source credits the New York State attorney general’s office with coining the term.)
As portrayed by FTC in a blog post and other materials, the older practice of “targeted pricing” was based on such factors as a consumer’s address, shopping history or demographic makeup. (In banking, some such moves can trigger fair-lending violations.) Now, advanced technology and the ability to track more than ever has opened the door to “price changes based on information like your precise location, your shopping habits, or your web browsing history,” according to the blog.
“Firms that harvest Americans’ personal data can put people’s privacy at risk. Now firms could be exploiting this vast trove of personal information to charge people higher prices,” said FTC Chair Lina Khan in a statement. “Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing.”
Khan said this in the course of announcing a major probe of companies, including JPMorgan Chase and Mastercard, that supply merchants with data about consumer characteristics and behavior.
“FTC’s inquiry will shed light on this shadowy ecosystem of pricing middlemen,” said Khan.
FTC’s July 23 request for information from eight firms as it explores this issue was approved unanimously by the commission, and at intriguing time.
First, it comes on the heels of major financial providers launching efforts to take a page from retail media networks, in which retailers provide marketing services and data to other companies.
In April, JPMorgan Chase announced Chase Media Solutions, which enables merchants to target special offers and rewards to consumers through Chase digital channels. Decisions hinge on consumers’ past spending activities using Chase payment instruments. In late May, PayPal announced a similar concept. PayPal hired the former head of Uber’s retail media network to run its new PayPal Ads operation. Indications are that other financial players will adopt similar concepts soon, although one vendor consulting with those companies said none were willing to talk about their plans yet.
The FTC probe also came just one day after Google announced that it would keep third-party cookies, a major tracking tool, in its Chrome browser after all.
Read more: The Future of Banking: AI Personalization as a Catalyst for Customer Loyalty
What the FTC Inquiry is Asking About
The commission subpoenaed eight firms under its “6 (b)” authority, which enables the agency to require companies to answer extensive lists of questions. Earlier in 2024, FTC used the rule to probe GenAI investments and partnerships, demanding input from Alphabet (Google’s parent), Amazon, Anthropic PBC, Microsoft and OpenAI. In this case, besides JPMorgan Chase and Mastercard, FTC subpoenaed Accenture, Bloomreach, McKinsey, PROS, Revionics and Task Software.
The questions posed in the 11 single-spaced pages fall into four broad categories:
- Types of products and services offered to merchants, including the type of algorithm used for each.
- Data collection methods used and the role of third parties in collecting it.
- Information about the products and services offered to merchants and how they use them.
- Impact on consumers, including on the prices they pay.
The eight providers have 45 days to answer the queries. Typically the first product from this process is an extensive report.
The document refers to “surveillance pricing” multiple times. In a concurring opinion to the order for the query, Commissioner Andrew Ferguson, a Republican member of the FTC, suggested the terminology was a bit leading.
“Calling the practice of personalized pricing ‘surveillance pricing’ is an unfortunate exercise in question begging,” wrote Ferguson. “It suggests something nefarious is afoot, which is precisely that we are issuing the 6(b) orders to discover. But this unnecessary exercise in political signaling should not stop us from investigating the practice.”
Commissioner Melissa Holyoak, also a Republican, concurred while raising similar objections to implying the term’s negative connotation.
Visits to the websites of the companies subpoenaed reveal a mix in specificity. Some make it clear that their services will help merchants maximize revenues via prices, while others are vague or don’t mention “price” or “pricing” at all.
An analysis by the Kelley Drye & Warren law firm noted that, while some FTC 6 (b) projects run for multiple years, “given the FTC’s continued focus on the consumer data ecosystem, and its implications for consumer privacy, security and competition, it seems likely the FTC will prioritize this effort to understand a practice that it believes could have real effects on consumers’ pocketbooks.”
And queries can become binding rules. A tool similar to the 6 (b) process has been used by the Consumer Financial Protection Bureau to inquire into such issues as big tech payments services and buy now, pay later. Recently, the latter inquiry culminated in the CFPB’s interpretive rule on BNPL financing.
Read more: The Personalization Paradox: Can Banks Delight Customers Without Creeping Them Out?
The Public is Nervous About Algorithms in Pricing
Shortly after the FTC issued its order, the advocacy arm of Consumer Reports published a survey concerning Americans’ attitudes toward use of artificial intelligence in business.
The study found widespread discomfort with use of AI and algorithms in major life matters, such as for screening job candidates.
Regarding personalized pricing, nearly half (47%) strongly opposed the practice. Another 19% opposed the idea somewhat and 26% neither supported it nor opposed it. Only 7% supported personalized pricing.
In a June essay in The American Prospect magazine, David Dayen, executive editor, commented that:
“Businesses have always wanted to maximize what they can induce people to pay, trying to walk right up to the limit before a customer says no. But everyone has a different pain point, and companies were deterred from purely individualizing what they charge, because of publicly posted prices and consumer anger over the unfairness of being charged differently for the same product.”
Dayen notes that when John Wanamaker opened the first of his namesake stores in 1876, standardized pricing with tags was a novel — and welcome — innovation.
Everyone could see those prices. No one knows what price you see on your laptop or phone versus what your neighbor sees. Writes Dayen:
“The old idiom is that every man has his price. But that’s literally true now, much more than you know, and it’s certainly the plan for the future.”