Does In-Store AI Violate Privacy Protections? Brick and Mortar Retailers Say ‘No’

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At a recent Senate hearing, lawmakers found a new target for concerns over consumer data privacy: brick and mortar retailers. Most retailers today collect shopper data, monitor in-store behavior, and send promotions or targeted content based on in-store data. Now, however, federal lawmakers may deem user data collection as a violation of shoppers’ rights to privacy — a ruling that is backed by Amazon and other e-retailers who want brick and mortar stores to be held to the same standards as ecommerce platforms.

To grasp the scope of a potential ban on in-store AI, NewtonX conducted a survey with 500 leaders of in-store analytics, AI, and rewards programs at brick and mortar retailers. The survey revealed the scope of in-store data that retailers collect, what aspects of this data collection are up to be potentially revoked, and what the consequences of a ban on in-store AI would be for brick and mortar retailers.

Protection for Citizens May Leave Retailers Unprotected

At a recent Senate hearing Senate Commerce Chairman Roger Wicker said “It is clear to me that we need a strong, national privacy law that provides baseline data protections [and]applies equally to business entities—both online and offline.” What would the inclusion of offline businesses in data privacy acts look like?

According to executives at Amazon and other large retailers, the biggest impact would be on loyalty programs, where retailers offer superior services and experiences based on whether or not a consumer shares their data. In fact, a landmark piece of California legislation, called the CCPA, which was drafted with the intent of protecting consumer privacy, much like GDPR, already has many retailers wondering if they are at risk of being sued for basic loyalty programs. The law not only prohibits offering a different level of quality based on whether a consumer shares their personal data, but also allows consumers to opt out of sharing any information that could lead the brand to associate their data with a “particular household.”

Loyalty programs aren’t the only aspect of retail under fire, though. California’s law also covers collection of audio, electronic or visual information, and “olfactory” information — data that many retailers collect in-store. For instance, Sephora uses Bluetooth beacons to identify customers’ smartphones when they enter a store, and sends personalized promotions to shoppers in real-time. Walmart, Lowe’s, and Target have all tested facial recognition systems for flagging people who have previously shoplifted, but the technology has not yet been rolled out.

These retailers are not alone in testing facial recognition: a growing cohort of technology companies such as Ayonix Face Technologies and FaceFirsthave rolled out facial recognition systems in stores to identify and flag scammers (the companies are understandably secretive about their clients). In fact, the global facial recognition market is expected to hit $8B over the next three years.

And yet, the technology’s use in retail is controversial; in 2015 the federal Commerce Department attempted to craft voluntary standards for facial recognition, but pushback from retailers and associations was so strong that the effort ended up falling apart. More recently, multiple senators have introduced bills that would disallow retailers from using facial recognition technology without customers’ consent.

While some of this technology could be used for anonymized data collection, much of it may be deemed sensitive personal data — particularly when it comes to profiling scammers/shoplifters. Brick and mortar retailers fear that tight regulations on in-store technology could make it even harder to compete with e-commerce giants.

The True Cost of Banning In-Store AI

In-store promotions and mitigated losses through facial recognition technology have actually yielded lower returns than many retailers expected. The biggest potential loss, which could translate into millions of lost revenue, is in loyalty programs.

Chances are, however, that brick and mortar retailers will not come under fire for loyalty programs, and will instead be forced to reconsider bluetooth signaling and facial recognition technology — two components of retail that, as of now, don’t provide significant cost savings anyways. “Getting permission to collect personal from our existing loyalty users would be cumbersome, but ultimately is probably a good idea, from a regulation standpoint,” said one respondent to the NewtonX survey. “I don’t see GDPR-like rules severely limiting in-store operations.”


About Author

Germain Chastel is the CEO and Founder of NewtonX.

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