United States: 2014 Mobile Privacy And Security Trends And What To Look For In 2015

Most analysts and commentators agree that 2014 was the year mobile reached a tipping point.  With over 1 billion mobile smartphones in circulation, 2014 marked the first year that mobile Internet usage surpassed desktop use in the U.S. This trend will continue as users spend more time on mobile apps than on the Web. Mobile traffic climbed to record levels last year, with users checking their mobile devices an average of 150 times a day. Mobile commerce grew dramatically, much faster than desktop e-commerce, and is projected to reach $293 billion in the U.S. by 2018. And just as important, a growing number of consumers are experiencing a " mobile mind shift" to an expectation of real-time, location-driven, context-specific user experience and engagement.

It is no surprise, then, that 2014 may also have been the year that consumer concern about mobile privacy and data security finally caught up to consumers' wide acceptance and use of the platform. As we have written about previously, Uber's recent privacy debacle is but the latest example of companies that came under intense consumer and regulatory scrutiny in 2014 for their privacy failings. Last year  also saw an extraordinary number of data breaches, including the disclosure by JPMorgan Chase of an issue that may have affected up to 76 million households and 7 million small businesses, many of whom were mobile banking customers.

The ink is barely dry on 2015 and data privacy and security have already jumped to the forefront of our national conversation. Last week, President Obama announced two proposed federal data privacy and security bills. The week before, FTC Chairwoman Edith Ramirez warned at the Consumer Electronics Show of the privacy and data security risks of the Internet of Things. Mobile's inexorable march – be it through apps or the IoT – will continue to demand more and more attention from lawmakers and regulators as privacy and security concerns grow.

This post provides a high-level summary of the major 2014 trends in mobile: marketing, mobile pay, and the IoT, as well as the legal and regulatory response. We then break out our magic eight ball to predict the mobile marketing and legal trends that will likely unfold over the next 12 months.

2014: What Happened?

Mobile Marketing Trends

With the consumer shift to mobile, marketers had to pivot to address the challenges of a mobile space with disparate vendor technology and suboptimal cookies performance. Chief among the new technologies that mobile marketers have adopted are cross-device tracking and geolocation tracking.

Cross-device tracking has grown increasingly more valuable to advertisers as consumers switch from device to device to view content. The goal of cross-device tracking is to identify all the devices a consumer uses – smartphone, tablet, laptop, desktop – and retarget ads to that user as he or she moves from device to device. This capability is important to advertisers because, unlike on desktops, cookies do not work on the majority of mobile apps and platforms. Tracking consumers across devices is also integral to understanding how consumer behavior shifts across platforms. For example, a consumer may initially view a product on a mobile device and then purchase that product on a desktop computer. There are two types of cross-device tracking: deterministic and probabilistic. Deterministic cross-device tracking is very accurate, as it requires users to sign into their websites and apps on every device they use (Facebook and Twitter are examples). Probabilistic cross-device tracking, on the other hand, is much less accurate and requires a very large set of data. The vast majority of companies rely on this type of tracking, as most companies do not require users to log in to use their website or app.

Geolocation platforms track user location data collected on mobile devices to create user profiles and connect relevant advertisers to identified consumers. In the past year, there has been a proliferation of location-based services (LBS) leveraging geolocation tracking and data. Geolocation or location-based services provide tremendous benefits to consumers in the form of navigation (e.g., GoogleMaps), local search (e.g., Yelp), and check-in (e.g., Foursquare). Sixty-five percent of businesses are projected to use LBS and geolocation tracking by 2016. But the same principle that makes geolocation services so appealing – the ability to provide consumers with real-time information tailored to their location – also raises significant privacy concerns, as companies can collect and compile – without consumer knowledge or consent – detailed records and consumer profiles on the places one works, eats, and visits; the events consumers attend; the people one socializes with; and more.

Mobile Payments

Mobile pay, also referred to as mobile money, mobile money transfer, and mobile wallet, generally refers to payment services operated under financial regulation and performed from or via a mobile device. While mobile pay is not new – it has existed for over a decade – the industry saw a boom in publicity in 2014 as Apple rolled out its new mobile payment service, Apple Pay, which allows for payment with just the swipe of the wrist in conjunction with its Apple Watch. Other mobile pay providers include Google Wallet, Softcard (formerly ISIS), Venmo, and PayPal, among others. The mobile pay market is projected to reach 2 billion transactions by the end of 2017.

Most current smartphone wallet apps with a tap-to-pay feature require a phone with a near field communication (NFC) chip to work. NFC chips allow customers to simply hold their mobile device in front of a scanner to make purchases. The technology evolved from radiofrequency identification (RFID) tech, which is what enables devices such as security scan cards and E-ZPass tollbooths. The benefit of NFC, however, is that it is limited to communication within four inches. Many experts see this small radius as a major security benefit, which explains its popularity as a secure alternative to credit cards. Both Apple Pay and Google Wallet use NFC chip technology, and the technology is likely to become more commonplace in the industry.

The Internet of Things

Last year also saw the rise of the Internet of Things. IoT refers to the connection of everyday objects to the Internet and to one another, with the goal being to provide users with smarter, more efficient experiences. Three major industries in which the IoT is expected to really take off are home security, retail, and automotive. A well-publicized example of IoT's growth in the home security industry is Google's $3.2 billion purchase of Nest, a company selling Internet-enabled home thermostats and smoke alarms with technology that many analysts believe will be used to manage multiple Internet-enabled home devices. The retail industry has seen the introduction of many wearable devices that are changing the way users communicate (see Apple Watch) and track fitness goals (see FitBit). The auto industry also embraced IoT in 2014, as automakers aggressively promoted the " connected car" – a vehicle equipped with Internet access and usually a wireless local area network, which allow the car to share Internet access with other devices both inside and outside the vehicle. In 2014, Google announced that it is partnering with Audi, GM, and Honda to put Android-connected cars on the road. A variety of apps designed especially for cars have also been gaining in popularity, including an app that alerts parents when a teen is speeding, and one that turns mobile device apps into a voice-activated experience.

There are an estimated 16 billion devices already connected to the IoT, and that number is projected to balloon to 50 billion by 2020. These new devices pose unique challenges to consumer data privacy and security.

Legal and Regulatory Trends

Mobile Data Privacy

A flurry of regulatory and legislative activity surrounded mobile privacy in 2014. The FTC continued to ramp up its efforts to monitor, regulate, and provide best-practice guidance in the mobile app space. In keeping with its position that geolocation data is sensitive information deserving a greater level of privacy protection, the FTC pursued enforcement actions against Snapchat, Fandango, and Credit Karma, among others, for failure to inform consumers that their geolocation data would be collected and stored by the apps. These actions followed a number of reports the FTC has issued in recent years on mobile privacy and data security, including What's the Deal? An FTC Study on Mobile Shopping Apps (2014); Protecting Consumer Privacy in an Era of Rapid Change (2012); Marketing Your Mobile App: Get It Right from the Start (2013); Mobile App Developers: Start with Security (2013); and Mobile Privacy Disclosures: Building Trust Through Transparency (2013). Self-regulatory groups have also been active in the mobile space, with the Digital Advertising Association (DAA) releasing self-regulatory mobile guidelines.

Last year also saw the introduction of a federal bill that would regulate the tracking of geolocation data, Senate Bill 2171, the Location Privacy Protection Act of 2014 (LPPA). This bill would, among other things, require consumer consent before companies could track geolocation data, and require companies collecting the location data of 1,000 or more devices to post online the kinds of data they collect, how they share and use it, and how people can opt out of data collection. The FTC testified in favor of the LPPA before the Senate Judiciary Committee last June.

Congress's growing focus on geolocation data recently made evident last year when the sponsor of the LPPA, Senator Al Franken, engaged in a very public exchange with Uber CEO Michael Kalanick last fall. Senator Franken wrote a letter to Kalanick, requesting very specific information on the company's privacy policies and practices. Uber responded to Franken's questions, but Franken was not satisfied with Uber's response and stated that "[i]t still remains unclear how Uber defines legitimate business purposes for accessing, retaining, and sharing customer data." Senator Franken vowed to "continue pressing for answers to these questions." Senator Franken similarly questioned the rideshare app Lyft about its privacy policies and over allegations that Lyft executives accessed the trip log of at least one journalist for no apparent business reason, without receiving consent.

Mobile Data Security

On the data security front, the FTC brought or settled seven enforcement actions in 2014, including those involving Snapchat, HTC, and TRENDNet, relevant to mobile and the IoT.

Snapchat, the developer of a popular photo messaging app, reached a settlement with the FTC in 2014 over both data privacy and security allegations. The FTC complaint alleged that Snapchat had deceived consumers about the amount of personal data it collected and security measures taken to secure that data. The data privacy allegations claimed that Snapchat misrepresented the ephemeral nature of the Snapchat app, which Snapchat advertised would allow users to send photos that "disappear forever" 10 seconds after they are received. The FTC alleged many ways a user could save a photo message permanently, including by taking a screenshot of the message, using third-party apps to circumvent the Snapchat timer, and accessing unencrypted Snapchat video snaps in a location outside the app's "sandbox." The data security allegations claimed that Snapchat failed to employ "reasonable security measures" to protect personal information transmitted in its "Find Friends" feature that made vulnerable 4.6 million user names and phone numbers during a security breach. Under the terms of the settlement agreement, Snapchat is prohibited from misrepresenting the extent to which it protects the privacy, security, or confidentiality of users' information, and is required to implement a comprehensive data privacy program that will be monitored by an independent privacy professional for the next 20 years.

In 2014, mobile device manufacturer HTC settled charges brought by the FTC that alleged the company failed to take reasonable steps to secure the software it developed for its smartphones and tablet computers. Among other things, the complaint alleged that HTC America failed to provide its engineering staff with adequate security training, failed to review or test the software on its mobile devices for potential security vulnerabilities, failed to follow well-known and commonly accepted secure coding practices, and failed to establish a process for receiving and addressing vulnerability reports from third parties. HTC settled these charges by agreeing to establish a comprehensive data security program, undergo independent security assessments for 20 years, and develop and release software patches to fix security vulnerabilities found in millions of HTC devices.

TRENDnet, a company that markets video cameras designed to allow consumers to monitor their homes remotely, reached a settlement with the FTC in 2014 over the first IoT complaint brought by the agency. The FTC alleged that TRENDnet marketed its SecurView cameras as "secure," when, in fact, the cameras had faulty software that left them open to online viewing – and possibly listening – by anyone with the cameras' IP address. The complaint alleged that, from at least April 2011, TRENDnet failed to use "reasonable security to design and test its software," which included a setting for the cameras' password requirement. This led hundreds of consumers' private camera feeds to be made public on the Internet in January 2012. Under TRENDnet's settlement with the FTC, the company is prohibited from misrepresenting the security of its cameras or the security, privacy, confidentiality, or integrity of the information that its cameras or other devices transmit. It is also prohibited from misrepresenting the extent to which a consumer can control the security of information its devices store.

2015: What to Expect    

In many ways, 2014 has set the stage for 2015. Here are the trends we see from last year that will continue for the next several months and beyond.

More Highly Targeted Location-Based Ads. Advertisers' increased use of cross-device tracking and geolocation tracking will allow mobile advertisers to create more highly targeted and highly personalized campaigns, and deliver them to consumers across all forms of technology. Facebook will be a platform to watch, as the largest social media company made changes to its terms of service at the beginning of this year concerning the tracking and collection of the geolocation data of its users. The purpose of this change is twofold: (1) to deliver more targeted advertisements to users, and (2) to allow for its new, optional Nearby Friends feature, which notifies in real time users of friends who are in the vicinity of the user. Facebook will use this capability to send targeted ads to consumers on mobile devices more than ever before.

Mobile Pay's Increased Growth and Security Focus. The mobile pay ecosystem is expected to grow in popularity in 2015, as consumers grow to trust the technology. Building on the success of major tech giants like Google and Apple, banks are also expected to launch their own mobile wallets. As the industry grows, experts predict that targeted attacks on mobile payment technologies can be expected.

Data Security. Speaking of which, data security will be a key concern for mobile app developers and marketers. As the number of mobile device users continues to increase unabatedly, there is a significant risk that millions of mobile users' personal information could be exposed to potential data breaches. This is of particular concern with respect to personal banking, health and financial platforms that are becoming increasingly mobile. Many experts highlight the security concerns with mobile payments and personal health inf0rmation as these platforms become more popular.  Emerging mobile payment methods like Apple Pay and others have incorporated various innovative security features in their use of NFC technology, Among other things, the credit card number, even in encrypted form, is not stored on the iPhone or on Apple's servers, nor is any credit card data transmitted to the merchant or stored on the merchant's servers. Rather, a token is used in its place that has no intrinsic value and would be useless to hackers. In general, mobile app developers will now more than ever need to be more vigilant to build in from the beginning reasonable data security measures tailored to the type of consumer information they are collecting and storing  and ensure compliance with relevant rules and regulations when dealing with financial,  health  and other sensitive information.   Individuals and IT departments will also likely become increasingly proactive in mobile data security.  As a result, we should see areas like enterprise mobile management, mobile malware detection, mobile data security apps, and mobile app auditing become more prevalent in this space.

Expansion of the IoT. Experts predict that by 2020, revenue generated by the IoT will hit $7.1 trillion. As these devices grow in popularity, experts predict that more than 90 percent of all IT networks will have an IoT-based security breach. With this potential risk to consumers, those in the IoT industry can expect increased FTC scrutiny and possibly enforcement actions in 2015 and the years to come.

Continued and Increased FTC Privacy by Design Scrutiny. The FTC has brought 5 0 data security actions in the past decade. With that track record, and consumers and marketers increasingly flocking to mobile, the FTC's attention to mobile apps is certain to grow in 2015, especially with the proliferation of the IoT and wearables. In her opening remarks at the Consumer Electronics Show on January 6, 2015, FTC Chair Edith Ramirez identified the three main areas of concern that the IoT presents: (1) ubiquitous data collection, (2) unexpected uses of consumer data, and (3) increased data security risks. In response to these risks, Ramirez outlined three key steps that companies should take to enhance consumer privacy and security in IoT devices: (1) adopt "security by design," (2) engage in data minimization, and (3) increase transparency and provide consumers with notice and choice for unexpected data uses.

The FTC's IoT privacy and security concerns mirror the agency's stance on mobile privacy generally and specifically when it comes to companies that do not heed its advice (i.e., Snapchat). For emerging tech companies leveraging mobile apps for consumers, the FTC will have little patience with privacy missteps this year after sending clear signals in several settlements in 2014 that mobile developers and marketers need to take privacy seriously. The FTC may send a similar message this year to IoT developers in the form of enforcement actions.

Federal Legislation. With an increase in high-profile data breaches, the introduction of the LPPA, and President Obama's recent announcement of two data privacy and security bills, Congress may be moved to take action at the federal level to legislate stronger data privacy and security measures that would also extend to mobile. The president's proposed bills call for a national data-breach notification law that would attempt to harmonize the patchwork of 47 different state data-breach laws, as well as a consumer privacy bill of rights that would allow consumers to decide what pieces of their personal data are collected by companies and how the data is used. However, most commentators expect that in the Republican-controlled Congress, only the former has a significant chance at passage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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