Taxing time for big data firms as regulator beefs up protection of user rights, privacy

Instead of asking how business is doing, the usual greeting among employees of big data mining and analytics firms these days has quietly changed into, according to some, “Has your boss been detained by police?”

Media reported that senior executives at domestic big data firms like Mjyun, Xinyan and GXChain have been taken away for police investigation into allegations that they breached laws on data security and privacy.

After expanding at a breakneck speed over the past few years, China’s big data industry has reached a tipping point amid a relentless government campaign against illegal acquisition of user data.

The fortunes of the industry, fueled by a boom in e-commerce and demand for smarter risk control in the financial sector, have declined precipitously since the annual CCTV consumer rights protection gala on March 15, where the state broadcaster aired revelations of some big data firms poaching, storing and selling data belonging to individual users.

Industry watchers have speculated that up to 70 percent of the big data firms in China have had their business links cut off in the form of being denied access to the application platform interface of their patrons, mostly banks.

Arrests were made and word quickly circulated among industry professionals that the market is in for a major shakeup, one that will likely weed out those bad apples.

When used as an umbrella term, big data means the application of digital tools like machine learning to establish the correlation between different data. Tracking these data sets could uncover patterns that are then incorporated into a process known as user profiling.

As consumers who are used to shopping online (who isn’t?), we are profiled and categorized into “higher-value groups” or “penny-pinchers” through filtered search engine results. And in this digital age, where everyone can be stripped bare after leaving a trail on the Internet, we literally wear an invisible scarlet letter marking our commercial value to merchants — almost certainly without our own knowledge.

A media friend once wrote that big data knows her better than she does, because she often receives late-night push notifications from food vendors on her phone. A possible explanation is her habit of ordering takeaways three times a week, normally during the night.

I don’t know if the intrusive messages have got her into rethinking her lifestyle, but apparently so much of the modern e-commerce infrastructure and customer acquisition protocol is built upon technologies like big data, that it becomes well-nigh impossible to imagine leading a life without them.

As a result of this tradeoff between convenience and privacy, some individuals are deluded into believing they can take liberty with the data that are entrusted to their care — until now.

Amid citizens’ mounting calls for reclaiming their data ownership, the government has initiated a crackdown on illegal acquisition and unauthorized storage and resale of user information. Many of the data poachers have sensed the danger, frenetically shutting down entire operations that use tools like Python to snatch large chunks of data from the Internet at almost no cost.

Soaring costs

Some of them have been struggling under curbs on access to user data for a while, and it appears the arrival of several regulations and directives has been the last straw.

For instance, on November 6, National Internet Finance Association of China, the country’s online banking alliance, issued a notice calling on members to step up individual information protection and carry out business in accordance with the laws. A concomitant purge has seen many public and private banks curtail collaborations with their data service providers. A direct result is mass layoffs within the big data industry and banks’ soaring costs.

In the past, it could take a bank clerk only minutes to screen profiles of hundreds of customers to establish their creditworthiness through tools like Python; nowadays, this process takes much longer as many bank employees are left sifting through the documents and conducting risk control by hand.

But even as costs shot up ­— by an estimated 50 percent or even more, according to some insider estimates — it is high time the authority hit the brake on reckless exploitation and monetization of big data.

Although the string of official crackdowns has hiked up the compliance costs, a healthy dose of regulation at this stage is what it takes to restore integrity to an industry that is sometimes compared to a “Wild Wild West.”

If anything, recurrent official messages have suggested that the days of China’s user data mining as a “Wild Wild West” may well be over, and if history is any guide, it both spells doom and carries a glimmer of hope.

In the wake of the RoadWay D&B incident in 2012, where the marketing agency’s whole Shanghai office staff had been taken into custody for alleged illegal acquisition and resale of user information, the big data industry was dealt a devastating blow, before it slowly got back on its feet.

Companies that came into being and thrived after 2012 had little memory of the lessons from the RoadWay D&B saga. But now that many of them have learned the lessons the hard way, this may signal the beginning of a new boom — this time a healthier one, hopefully.