In fact, as Richard Posner suggested more than 20 years ago, there is a fundamental economics of personal privacy -- an economics that is in large part responsible for, and untiringly organic to, our Constitution. It is feasible, therefore, that there are rudimentary, biological, economic bases at the very roots of humankind's insatiable desire and need for privacy and security. (Posner, 1983)

As McBride's research further indicates, "In 2002, the Potomac Institute for Policy Studies initiated Project Guardian: Maintaining Civil Liberties in the Information Age. The effort is aimed at shepherding discussion from all qualified voices on issues central to the tradeoff between privacy and security, particularly as this balance is threatened, or is perceived to be compromised, by advances in technology. Guardian is enriching the discussion by establishing a rigorous, multiway forum for scholars, policy professionals, and everyday citizens by distilling opinions to reveal core facts, laying bare unchallenged assumptions, and by honoring but qualifying disparate attitudes. The program will seek meaningful policy options so that appropriate decisions can be made -- not at all absent opinion -- but by building upon objective analysis and by submitting rigorously informed opinion." (McBride, 2003)

Privacy's application to modern day banking

According to the 2005 Privacy Trust Survey for Online Banking released April 5, 2005, bank customers who maintain a large amount of trust in their bank are more likely to perform a wider variety of more complex online banking tasks, such as automated bill payment or applying for new products or services. The study, sponsored by Watchfire, Inc. And conducted by the Ponemon Institute, also demonstrated that these consumers are more likely to remain loyal to the financial institution they trust, translating into more profitable transactions for banks. (Business Wire, 2005)

According to Business Wire's April, 2005 research, "The survey reveals consumers with a high level of trust in their primary bank are loyal - they aren't seeking services from other institutions, with 55% stating they have never even visited another bank's website. However, the study also revealed that 57% of consumers with high trust in their primary bank say they would cease all online services with their current bank in the event of a single privacy breach. That could translate into the potential loss of millions of customers making even a single breach a very costly problem for banks." (Business Wire, 2005)

There has been no shortage of high profile online privacy breaches fueling consumer fear of completing online banking transactions and sharing personal information over the Internet," comments Peter McKay, president and CEO of Watchfire."Mainstream media focus on phishing and identity theft is heaving online privacy and trust issues to the absolute forefront and customers are more anxious than ever before of how their personal information is being used. Banks need to keep a close eye on the integrity of this critical online channel or face costly customer defections." (Business Wire, 2005)

This prominently published Web-based study, conducted in late February and March of this year, requested respondents to indicate how secure and confident they felt that their primary bank is committed to protecting the privacy of their personal information. A total of 2,328 responses were received (17.2% response rate) and the top banks selected as their primary bank for online banking are National City, Washington Mutual, U.S. Bank, PNC, Citibank and Wachovia.

Trust is becoming the vital component in customer loyalty and brand strength," said Dr. Larry Ponemon, chairman and founder of Ponemon Institute, which is one of the groups involved in the study."Our study reveals that, even among banks with the highest level of consumer trust, it only takes one privacy breach to destroy that relationship. In other words, not only do customers expect that their bank has procedures in place to protect them from identity theft, but if it becomes obvious that those safeguards are not working, they will walk." (Business Wire, 2005)

All signs point to the importance of earning consumers' trust. The recent study demonstrated that the primary reason consumers use Web banking is convenience (71%). It showed that 59% are "much more confident" or "more confident" in online banking than they are about branch banking. Combining convenience with confidence is a win-win situation for financial institutions with the potential of adding more online customers, but there must be a focus on security in the process of automating bank features as we look to our future.

Respondents to the survey were also requested to indicate what steps a bank should take to gain or increase...

According to the survey results, "The number one reported answer is to limit the sharing of personal information with third parties, followed by fewer annoying or irrelevant online ads or marketing promotions. The next most frequent response is having procedures in place to validate the consumer's identity when they transact business with the Website." (Business Wire, 2005
Some other findings of the study that revolutionized the way bank experts and executives think about privacy issues moving forward with automation include:

Significant customer acquisition opportunity still exists for banks.

70% of respondents strongly agree or agree that their bank is committed to protecting their personal information.

Only 21% of respondents reported that an email from their bank is "always" or "most of the time" information they want to receive. Banks should be concerned that email communication may scare some consumers. (Business Wire, 2005)

Since email has been one of the main avenues for targeted phishing scams, it is not at all a surprise or recent revelation that the survey points to identity theft as the biggest customer concern in the event of a breach or violation of personal information. Although gaining and maintaining consumer trust is challenging, it must be a priority. Building consumer trust in the Web channel will impact customer acquisition and retention rates.

What do we do about it?

What is the proper response to this, the newest twist in the privacy wars? A federal regulatory proposal would bring Big Brother to your bank, where he would be counting more than just your pennies.

George Orwell hit the nail on the head in his dystopia novel Nineteen Eighty-Four, but he simply missed the mark by a decade. Big Brother wants bankers to create a dossier on every account holder. And a federal regulatory proposal dubbed "Know Your Customer" could do just that by turning bank tellers into snoops. Indeed, today it sounds like an episode from the X-Files, but in reality, it is exactly what banks are fighting for to protect privacy and continue to do business.

This indeed is the welcome to the Orwellian dawn of the 21st century, where the lost age of Aquarius has become the new age of surveillance, bolstered by electronic cascades of personal information that are ever more readily accessible. According to Maier's research, "Both liberals and conservatives increasingly are concerned about a society they fear is all too willing to surrender another layer of privacy in exchange for a false sense of security.

Across the nation - in Maryland, for instance -- camera cops are replacing the squad car. In New York, witnesses are frisked like suspects as part of a crackdown on violent crime. In New Jersey, critics charge that "Megan's Law" which requires child sex offenders to register with the local cops, turns neighbors into spies and vigilantes. In Chicago, U.S. Customs agents routinely strip search and probe body cavities of black females traveling internationally if authorities believe they fit a certain profile." (Maier, 1999)

If this scare is not personal enough, one need simply ask one's local motor-vehicle administration if they are selling your driver's-license photograph and personal data. For those who live in South Carolina or Florida, the authorities there have sold some 17 million such photographs to a New Hampshire company, claiming to be building a national database to identify theft.

According to Maier, on Capitol Hill, medical-identity cards and even universal identity cards top political agendas, while the Federal Communications Commission hopes to turn your wireless telephone into a personal tracking device so the government can keep tabs on you -- for your own protection and privacy, of course. And personal computers built by Intel Corp. were to contain silicon chips allegedly to protect electronic transactions but, as it happens, also to let marketers track consumers' every move in cyberspace.

As a result, it should arrive as no revelation that your trusted banker has been enlisted by Big Brother to help him watch every financial move you make. The Federal Deposit Insurance Corp., or FDIC, the Federal Reserve System, the Office of the Comptroller of the Currency and the Office of Thrift Supervision are frighteningly vague about how your banker should implement the program. According to Maier, "However, the rule published Dec. 7, Pearl Harbor Day, in the Federal Register calls for uniform banking procedures to identify customers, establish their sources of money, note their "normal and expected transactions" watch for transactions that are inconsistent with the customer's "normal and expected transactions"…