Data Brokerage: Definition, Example, and FAQs

What Is Data Brokerage?

Data brokerage is the business of collecting, aggregating, analyzing, and selling or licensing information about individuals and organizations to other companies, individuals, or government entities. These companies, known as data brokers, gather vast amounts of personal data from diverse sources, both online and offline, to create detailed profiles of consumers. This practice falls under the broader umbrella of Information Technology, specifically related to data management and the digital economy.

History and Origin

The concept of brokering information has roots in the direct marketing industry, evolving from the sale of mailing lists. However, the modern data brokerage industry as we know it began to truly flourish with the advent of the internet and the decreasing cost of data storage and processing in the late 20th and early 21st centuries. The ability to collect, analyze, and store enormous volumes of big data transformed the landscape, making it easier for companies to build comprehensive consumer profiles.

In 2014, the Federal Trade Commission (FTC) released a significant report titled "Data Brokers: A Call for Transparency and Accountability," which shed light on the practices of the industry and called for greater consumer control over personal information.¹¹, ¹² This report highlighted the opaque nature of data brokerage, noting that consumers were often unaware of these entities' existence or the extent of data collected about them.¹⁰

Key Takeaways

• Data brokerage involves companies collecting and selling or licensing detailed information about individuals.
• Data brokers gather information from a wide array of sources, including public records, online activities, and commercial transactions.
• The industry enables various applications, such as targeted advertising, fraud detection, and market research.
• Significant concerns exist regarding data brokerage, particularly concerning consumer privacy, data security, and the potential for misuse of information.
• Regulations, such as the California Consumer Privacy Act (CCPA), aim to provide consumers with more control over their data held by data brokers.

Formula and Calculation

Data brokerage does not involve a specific financial formula or calculation in the traditional sense, as it is a business model centered on information aggregation and sale rather than a quantifiable financial metric. The value derived from data brokerage is qualitative, stemming from the insights and utility the collected data provides to its buyers for purposes such as customer segmentation and predictive analytics.

Interpreting Data Brokerage

Interpreting data brokerage primarily involves understanding its role within the economy and its implications for individuals and businesses. For entities that purchase data, it represents access to valuable insights for market research, risk assessment, or personalized outreach. For individuals, data brokerage raises fundamental questions about data privacy and the control they have over their digital footprint. The sheer volume and granularity of data amassed by brokers mean that highly specific profiles can be created, leading to concerns about information asymmetry where companies know significantly more about individuals than individuals know about the data collected on them.

Hypothetical Example

Imagine "MegaData Corp," a hypothetical data brokerage firm. MegaData collects publicly available information, such as property records and voter registration, combines it with commercial data from loyalty programs, online purchases, and social media activity. They then use data analytics to infer details like income brackets, hobbies, and even political leanings.

A car insurance company, "SafeDrive Insurance," wants to identify potential high-value customers. They purchase a segment of MegaData's profiles that indicate individuals with stable employment, homeownership, and a history of purchasing family-oriented products. SafeDrive uses this data aggregation to craft highly specific marketing campaigns, assuming these individuals are lower risk and more likely to invest in comprehensive insurance policies.

Practical Applications

Data brokerage has numerous practical applications across various sectors:

• Marketing and Advertising: Data brokers provide granular consumer profiles that enable highly targeted advertising campaigns, allowing businesses to reach specific demographics with tailored messages. This is a primary driver of the industry's monetization.
• Risk Mitigation and Fraud Detection: Financial institutions and other businesses use data from brokers to assess creditworthiness, detect fraudulent activities, and verify identities. For instance, data can help banks calibrate loan offers based on an applicant's predicted financial situation.⁹
• Background Checks: Employers, landlords, and government agencies often utilize data brokers for background checks, accessing public records and other data points to vet individuals.
• Public Safety and Law Enforcement: Government bodies use data broker services for various purposes, including national security investigations and identifying persons of interest.
• Market Research and Analytics: Businesses leverage brokered data to understand market trends, consumer behavior patterns, and competitive landscapes.

The Consumer Financial Protection Bureau (CFPB) has also highlighted how data brokers gather and sell sensitive financial and other data, often for low costs per record, raising concerns about national security and identity theft.⁸

Limitations and Criticisms

Despite its widespread use, data brokerage faces significant limitations and criticisms, primarily concerning transparency, data security, and ethical implications.

One major criticism is the lack of transparency; consumers often have no idea what information is collected about them, how it's used, or to whom it's sold. This opacity makes it difficult for individuals to exercise control over their privacy policy settings or correct inaccuracies.⁶, ⁷ The secretive nature of the industry means that the full scope of data collection and its potential impacts are often unknown.⁵

Concerns about consumer protection are paramount. The sale of sensitive personal information can lead to issues like identity theft, scams, and even discrimination if profiles are used to unfairly target or exclude individuals. Reports have shown how data brokers have sold data on military personnel or even unpublished home addresses, raising alarm among policymakers.⁴

Another limitation is the potential for data breaches. Given the vast repositories of personal information held by data brokers, they represent attractive targets for cyberattacks, with the potential for massive exposure of sensitive data. This underscores the need for robust regulatory compliance and stringent security measures within the industry.

Data Brokerage vs. Data Privacy

While closely related, data brokerage and data privacy represent distinct concepts, often existing in tension.

Data brokerage refers to the commercial activity of collecting, processing, and selling consumer data. It is a business model focused on the economic value of information. Data brokers actively seek to acquire as much data as possible, from various sources, to create comprehensive profiles for sale.

In contrast, data privacy is a fundamental right or principle concerning the collection, storage, use, and sharing of personal data. It centers on an individual's ability to control their personal information and how it is utilized by others. Data privacy encompasses regulations like the California Consumer Privacy Act (CCPA) in the United States, which empowers consumers with rights such as knowing what data is collected, requesting its deletion, and opting out of its sale or sharing.³ These laws aim to mitigate the potential negative impacts of data brokerage by granting individuals greater control over their information.

FAQs

What kind of data do data brokers collect?

Data brokers collect a wide array of information, including demographic details (age, gender, marital status), contact information, financial indicators (income, credit history), purchase histories, online activities (websites visited, apps used), public records (property deeds, court records), and even inferred interests or behaviors.

How do data brokers get my information?

Data brokers acquire information from numerous sources, often without direct interaction with the individual. These sources include public records (e.g., government databases, court filings), commercial transactions (e.g., warranty registrations, loyalty programs, magazine subscriptions), online activities (e.g., browsing history, social media, app usage), and other businesses that collect and sell their customer data.

Is data brokerage legal?

Yes, data brokerage is generally legal, although it is subject to varying degrees of regulation depending on the jurisdiction and the type of data involved. Laws like the California Consumer Privacy Act (CCPA) in the U.S. and the General Data Protection Regulation (GDPR) in Europe have introduced regulations requiring more transparency and giving consumers greater control over their data.

Can I remove my data from data brokers?

Some jurisdictions provide mechanisms for individuals to request that data brokers delete their information or opt-out of its sale. For example, California's "Delete Act" aims to create a centralized mechanism for consumers to submit a single request to delete their personal data from all registered data brokers.¹, ² However, fully removing all your data from every data broker can be challenging due to the sheer number of companies and the continuous nature of data collection.

What are the risks of data brokerage for consumers?

The risks for consumers include privacy breaches, identity theft, targeted scams, potential discrimination (e.g., being unfairly denied services or charged higher rates based on inferred profiles), and a general loss of control over one's personal information. The lack of transparency in the industry is a significant concern for advocates of consumer protection.