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E-commerce and consumer data: Is regulation needed?

E-commerce and consumer data: Is regulation needed?

E-commerce is booming and big data has allowed companies to engage in more personalised online marketing communication with consumers. Can regulatory initiatives keep up?

As consumers, we are spending an increasing amount of time and money online, browsing through all that the Internet has to offer. During these online shopping sprees, we also frequently cross (digital) borders. In 2019, global e-commerce sales amounted to $3.5 trillion, with an expected amount of sales of $4.2 trillion in 2020: quite a market.

The COVID-19 crisis has been a catalyst for the growth of our online presence and shopping behaviour. Our physical interactions are significantly limited and traditional brick-and-mortar stores have imposed strict measures to avoid further contagion. A recently published report by the OECD highlights a clear growth in e-commerce in the time of COVID-19. Especially during these times, e-commerce allows consumers access to an extensive range of products and services, while respecting all current measures.

Personalisation

Unsurprisingly, while we browse away, companies are constantly looking for ways to reach us. One of the main trends that has emerged over the years is personalisation. Personalised advertising, newsletters, discounts, and recommendations are all strategies employed by companies to court their (prospective) clients. Indeed, we often tend to react well to those initiatives, especially when they facilitate our online experience or provide us with a good deal. After all, who says no to a bargain?

From a company perspective, of course, there is an economic interest tied to such advances. Targeting those consumers that you know will react positively to your offer seems to be a surefire way to optimise revenue. However, companies also have an inherent interest in actually understanding consumer behaviour. What works and what does not? They are naturally curious about their clientele and constantly innovating in order to engage effectively with their customer base. Though this is definitely no new phenomenon, the current dynamics between seller and buyer are subject to technological advancements that are moving at a swift pace.

Digital footprint

This is where our current online environment comes in. As we go through our days, often glued to our smartphones and laptops, we leave behind a so-called digital footprint: traces that give away our characteristics, behaviour, and preferences. This footprint consists of many different data points, submitted both actively and passively. Think of your likes and activity on social media, your browsing history, and your purchase history. Online, we do not have the relative anonymity that we have in the offline world when facing a seller.

Enabled by technological advancements, companies are increasingly able to collect large amounts of such data of existing and potential customers. Just like we compare websites and offers, companies ‘compare’ us, based on the data we give away. What’s more, this data collection and analysis is facilitated by data brokers: companies that collect, analyse, and share information about consumers, without interacting directly with the consumers. These advancements amount to the information asymmetry between companies and consumers, where companies often tend to know more about us than we actually know about ourselves.

It is not only a matter of collecting data, but also what is done with that data. Sophisticated technologies powered by automated algorithms, such as data mining and profiling, enable companies to interpret and analyse large amounts of data that are often too complex or too extensive to be eligible for manual (human) processing. Such technologies could offer unprecedented opportunities to improve and facilitate decision-making procedures for companies and governments.

Legal concerns

From a legal perspective, concerns have been raised regarding the current state of the art, as well as the direction that technological advancements are heading in. Though a lot can be said for the benefits of personalisation, there are potential risks tied to the future of e-commerce and the interaction between companies and consumers.

We are less rational and sensible than we think. Plagued by different biases and the information overload experienced online, consumers are prone to certain pitfalls in their decision-making. Earlier this year, the ACM (the Dutch Authority for Consumers and Markets) published guidelines (in Dutch), elaborating on the protection of consumers in relation to online persuasion tactics. Companies can use their consumer insights to counteract pitfalls, guiding us to make the ‘right’ choice. However, these same insights can be used to exploit consumer weaknesses.

In addition to consumer protection law, other fields of law are intimately linked to the concerns raised in relation to e-commerce and consumer data. For example, data protection law, competition law, and anti-discrimination law, all raise legitimate questions as to the direction in which we seem to be heading.

Regulation

In late 2019, the European Parliament introduced Directive 2019/2161 (the ‘Omnibus’ Directive), which will be enforced from 28 May 2022 onwards. The Directive is aimed at effectuating better enforcement and modernisation of consumer protection rules, as well as making consumers more resilient when navigating through the online environment. For example, the Directive includes a requirement to disclose to consumers whether the price shown is personalised based on automated decision-making. Such a disclosure requirement follows the line of past regulatory undertakings, also ultimately aimed at empowering consumers in their decision-making process.

The complexity of the online environment as well as the rapid speed at which it is developing, begs the question whether such regulatory initiatives will succeed in their aims. It is uncertain whether ‘classic’ legal regulation will be sufficient. Technology is developing at a rapid pace, often in complex ways that legal regulation cannot fully grasp. More insights into the current state of the art, as well as (empirical) insights into consumer psychology and company perspectives are needed in order to assess whether, and how, we will be able to regulate our ever-changing digital market.

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