What Happens With Your Personal Shopping Data?

NEW YORK (LowCards.com) -- Think twice about what you buy with a credit card because your personal shopping information is collected by Visa (Stock Quote: V), MasterCard (Stock Quote: MA), banks, credit card issuers and smart wallets, then sold to advertisers and marketers.

Like it or not, advertisers and businesses want to know about your spending habits so they can target you to buy their products and services. Credit card networks and issuers have enormous databases of purchase and shopping data which they aggregate, package and sell.

Every purchase you make says something about you. This data are collected and you are grouped with others who have similar interests and spending patterns. Businesses then deliver ads aimed specifically to your group.

For years, "cookies" have been used to gather information about your online behavior to create a personal profile and target ads based on that profile. Access to transaction data from your debit or credit card fills in the gaps with purchases you've made in the offline world.

Your name, Social Security number and bank account are never disclosed to the business or merchant. Customers are represented by numeric codes so individuals remain anonymous.

Through third parties, banks and credit card issuers can partner with retailers to offer you deals based on your purchase history. These offers can appear with your billing statement or pop up when you log into your account. You may get an offer by text or email.

CNN reported that merchants pay banks an average fee of 10% to 15% of the purchase price of a product each time a customer uses a discount generated from the bank's data. The bank takes nearly 25% of that fee and pays the rest to an intermediary that works with banks and merchants such as Cardlytics. So if you buy a $500 item, the merchant pays a fee of up to $75; the bank get about 25% of this, or $18.75.

In their terms and conditions, credit card issuers disclose that they can share personal information about people with outside companies for marketing. Visa has filed patent applications for ways that will use credit card transaction data to target digital ads and personalize other content. Visa's profile generator will include nontransaction data from your address as well as information from social network Web sites, credit bureaus, search engines, insurance claims and even DNA databanks.

MasterCard's Web site lets people opt out of these kinds of programs by filling out the info under "Data Analytics Opt-Out" and "Web Analytics Opt-Out."

Shopping with smartphones, such as Google (Stock Quote: GOOG) Wallet, is an easy way for companies to gather information. Google Wallet describes its broad use of data in its privacy policy:

When you use the Processing Service to conduct a transaction, we collect information about each transaction, including the transaction amount, a description provided by the seller of the goods or services being purchased, the names of the seller and buyer and the type of payment used. We may also collect transaction data from your use of the Mobile Wallet. For example, if you use the Mobile Wallet Application to make a purchase at a merchant or download a merchant coupon, we may obtain information regarding that transaction from the Mobile Wallet Application, from the merchant and/or a partner, as applicable. The information may include the date and time of the purchase, the store location, the amount of the purchase, and the offer associated with the transaction.

Google Wallet says it uses this information to:

Provide offers, coupons and other similar products to you for goods or services that may be provided by merchants, partners and other third parties alone or jointly with Google; to provide products and services, including the display of customized content and advertising; to perform auditing, research and analysis in order to maintain, protect and improve its services and develop new services.

- Bill Hardekopf is chief executive of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

You may be alarmed at what retailers and merchants do with your data, but while it's annoying that they are making money off of your information, what is the risk for you? MainStreet looked at stolen data and why it isn't as big a deal as the headlines suggest. Check it out!