Privacy is engraved in the Universal Declaration of Human Rights

Article 12. of the Universal Declaration of Human Rights reads: “No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.”

How can this be interpreted at a time when social media is transforming citizens’ perception of privacy? If you purchase a unicorn toy online, are you certain the next time you open your browser you will not see ads for unicorns? Will you not expect to receive e-mails suggesting matching accessories for your unicorn? Is this not an arbitrary invasion of your privacy?

In the European Union, the General Data Protection Regulation, introduced in 2018, does increase the privacy for individual citizens as it primarily aims to give control to individuals over their personal data. But it is limited in scope and in its application.

Privacy is a key attribute of payments

CashMoney in physical form such as banknotes and coins. More has often been associated with illegal transactions because of its anonymous nature. Economist Kenneth Rogoff [1], wrote in 2014, “Paper currency facilitates making transactions anonymous, helping to conceal activities from the government in a way that might help agents avoid laws, regulations and taxes”. The 2016 demonetisationSee Demonetised banknote. More in India was largely motivated by the desire to fight corruption and curb the shadow economy. The ECB decision to cease issuing €500 notes in May 2016 was also justified by concerns that the denominationEach individual value in a series of banknotes or coins. More could facilitate illicit activities.

However the mind-set is evolving.  Economist and Fed Research Fellow Charles Kahn [2] wrote: “Policymakers now fully recognize the importance of privacy considerations in financial infrastructure, including payments arrangements.” The IMF also recognises the importance of privacy in payments; in a recent paperSee Banknote paper. More on central bank digital currencies [3], it underlines that the ability to make anonymous transactions is an important criterion for a payment instrumentDevice, tool, procedure or system used to make a transaction or settle a debt. More. The paper states: “In designing moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More, national authorities already face a trade-off between satisfying legitimate user preferences for privacy and mitigating risks to financial integrity.” And privacy was an important factor when the Swiss National Bank decided to keep its denomination mix unchanged and to continue issuing a CHF 1,000 note. Deputy Chairman of the Swiss National Bank Governing Board, Fritz Zurbrügg wrote: “It (cash) offers the certainty that one’s privacy is protected.”

Several motivations for privacy in payments

Demand for privacy in payments is driven by several motivations and most are perfectly legitimate.

Safety and security of the transaction is one motivation.  As paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More fraud, data breaches and identity theft are increasing in value and in complexity, the ability to make a transaction without revealing one’s payment or banking details is important. According to the Nilson Report, gross card fraud losses in 2017, amounted to €24.26 billion, up 6.4% from the previous year.

A second motivation is the desire to conceal one’s identity from the parties involved in the transaction. That can include the merchant and/or the payment service provider(s).  When France lowered its restriction on cash payments from a threshold of €3,000 to €1,000, the jewellers’ and watchmakers’ association voiced their concern that this would severely impact the industry. Medicine is another example where buyers may prefer not to reveal their identity but there are many other situations where anonymity is important.

In some cases, consumers want to conceal their identity from the authorities; during the recent protests in Hong Kong against the extradition-bill, many commuters switched to cash rather than using their electronic transit card and leave a digital trail of their participation in the protests.

Thirdly, anonymous transactions enable consumers to protect themselves against the monetisation of their personal information. According to McKinsey & Company [1]: “Probably the greatest potential of data monetization comes from merging cardholder data with data from the merchant side to gain an end-to-end view on transactions that can unlock additional value.” The benefit is clear for the bank or payment service provider but what about for the consumer?

Lastly, some people have no option but to use anonymous payment instruments because they are unable to prove their identity. According to UNICEF, the births of nearly 230 million children under the age of five worldwide have never been officially recorded. And according to the UNHCR, the number of forcibly displaced people worldwide reached a record high of 70.8 million, many of whom are undocumented.

[1] Botta, Alessia ; Digiacome, N and Mole Kevin ; 2017. Monetizing data : A new source of value in payments

[1] Rogoff, Kenneth S. 2014. Costs and Benefits to Phasing Out Paper Currency ; National Bureau of Economic Research; Working Paper 20126

[2] Kahn, C. 2018. «Payment Systems and Privacy Federal Reserve BankSee Central bank. More of Saint Louis ; Fourth Quarter 2018, Vol. 100 n°4

[3] Mancini Griffoli, Tommaso ; Martinez Peria, Maria Soledad ; Agur Itai ; Ari, Anil ; Kiff, John ; Popescu, Adina ; Rochon, Celine. 2018. Casting Light on Central Bank Digital Currency ; IMF Staff Discussion Note November 2018

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