Loyalty Truth

After spending two days documenting my recent experiences with location based service Foursquare, I thought it was time for another type of check-in – this time with the threat of data theft in our world and the many ways we are exposed to this important risk.

I’m a JP Morgan Chase customer and suffered through last week’s online banking outage as mystified as everyone else. For me, the banking app was out of service for almost 7 days. At the outset, the bank did not acknowledge it had a problem, posting a message that the site was down for “maintenance”.  After a few days it revealed more, but not all of the circumstances, of the problem only after being pushed by heavy consumer outcry in social media channels.

During the summer, Citi revealed that it found a security flaw in one of its key online banking apps for iPhone. Attesting that no customer information was improperly accessed, the bank noted they had released an update which prevented customer information from being saved to hidden files on the iPhone.

A recent report on CNN attempted to strike the chord of consumer fear, telling us that digital loyalty cards are not secure. The story behind that headline made clear that it was not the digital apps or the loyalty programs that are the problem. It’s the WIFI networks that people use in cafes and other public places that invite risk. Whether you are checking in on Foursquare or checking your online banking account, you are in peril due to the thin security layer of most public WIFI networks.

In August, ConsumersUnion.org reported that consumers could be at risk of losing money through the proliferating number of mobile payment applications hitting the market when mistakes are made by merchants and processors or as a result of fraud.

All of this could be written off as a series of interesting but unrelated events and opinions, except when we recall that TJ Maxx suffered a massive breach of debit and credit card information. In our “what’s important today” world, the 2007 incident is nearly forgotten, except by TJ Maxx shareholders who saw earnings take a $.25/share hit in just one quarter from the $118 Million charge needed to rectify the problem.

Database marketing is by definition enabled by collecting transactional data from consumers. Loyalty programs thrive on pairing this behavioral data with attitudinal data to create value propositions and drive incremental profits. Location based marketing mandates that consumers give up a certain level of personal information, including their exact whereabouts, over vulnerable public networks.

The incidents I’ve mentioned provide only a hint of the potential for calamity from a massive data intrusion or theft by cunning hackers and organized criminals. If you think it will never happen, then you probably thought tech stocks would never cool off or a housing bubble was impossible.

The problem is not completely out of our control. Wise brands will ensure that information collected for marketing purposes will be properly encrypted and that usable account numbers will always be masked by ‘reward account numbers”. Loyalty program sponsors will ensure that their providers are PCI compliant and will place equal emphasis on security as with other bells and whistles of the software being sold.

A big wildcard is how consumers will react if a big data theft does occur. Our responsibility is to ensure that we protect the consumer data we collect and that we take extra steps to communicate what we are doing to bring value to customers while mitigating risks.

If you want to build holistic or enterprise loyalty, you’ve got a big job on your hands. Enlisting the cooperation of colleagues from marketing, IT, and data security in your company when planning your next marketing campaign should ensure that the job doesn’t get unnecessarily bigger.