Understanding The Impact Of Data Breaches On Businesses

A business can face numerous setbacks after a data breach, including financial repercussions, eroded customer trust, and reputational harm. The magnitude of these losses is often influenced by how customers perceive the company’s response to the breach. By utilizing threat intelligence services from GuidePoint, companies can bolster their cybersecurity posture and swiftly address vulnerabilities. A comprehensive and transparent communication strategy is also vital, ensuring that consumer and media concerns are addressed with clarity and assurance.

Loss of Customer Trust

When data breaches are made public, consumers can lose trust in the company they once supported by purchasing its products or services. This can lead them to move their business elsewhere, especially if the new company offers the same product or service at a lower price.

Companies can also lose trust if they don’t communicate well with their consumers after a breach. For example, when Target announced that it had been breached, many loyal customers refused to shop at the store because they couldn’t find out if their information had been compromised or because the company was difficult to contact for more details.

According to a study by CA Technologies and Frost & Sullivan, most consumers believe that businesses should offer compensation for data breaches and victims for their lost time, stress, and credit scores. They also believe that companies should be held to higher standards by regulators and should have more stringent data protection measures. These initiatives can help restore consumer trust after a data breach.

Loss of Customer Loyalty

When customers entrust a business with their personal information, they expect the company to keep it safe. Having that trust broken can make consumers think twice about ever doing business with the company again. It can also impact the number of referrals they provide to their friends and family.

Companies must be transparent with the public after the impact of a data breach and explain what happened to the victims of the hack. Customers want to know how the company responded and what steps are being taken to prevent future violations. They should also allow customers to access more documentation deeper into the breach than briefly describing what occurred.

Additionally, a data breach can lead to class action lawsuits that must be considered when calculating the costs of a data breach. These legal costs can hurt a company’s bottom line. This is especially true if the company is in an industry that owes a fiduciary duty to consumers and must protect their data. For example, if a consumer’s medical records are compromised by a healthcare provider or credit card information is leaked by a bank, they may file a class action lawsuit.

Identity Theft

In recent years, large companies have suffered breaches, exposing their customers’ names, email addresses, dates of birth, phone numbers, credit card information, and hashed passwords. But small and mid-sized businesses are not immune, as many attacks happen through Point of Sale (POS) terminals in restaurants and retail stores.

Identity theft is one of the most severe consequences of data breaches and can result in blemishes on consumer credit reports, collection calls from debt agencies, and even foreclosures on homes. It can also damage a company’s reputation and impact future sales of its products or services.

Some breaches expose a business’s confidential or proprietary data, such as contracts, reports, blueprints, and plans. This information can be held to ransom, sold to competitors, or made public, resulting in significant costs. Regulatory fines may also be part of the cost of a breach.

Financial Loss

When companies are breached, they must compensate customers, which can add up quickly. They also face legal costs. In addition, they may lose business from clients who no longer want to deal with them.

The personal information hackers steal from breaches can include names, dates of birth, Social Security numbers, and driver’s license information. It can also include payment card details, healthcare records, and more. Equifax’s 2017 data breach in the US exposed 145 million consumer details, including names, addresses, and Social Security numbers.

Hackers can also use stolen personal data to commit fraud, which is why the Payment Card Industry Data Security Standard (PCI DSS) dictates who can handle and access sensitive payment card information. Within the healthcare industry, the Health Insurance Portability and Accountability Act regulates who can see and access Protected Health Information (PHI), including names, addresses, and dates of birth.

Other breaches are purely destructive, with hackers accessing systems to destroy files, wipe hard drives or cause further damage to the organization. These attacks comprise 17 percent of data breaches and are often conducted by nation-state actors or hacktivist groups.

Reputational Damage

When a company suffers a data breach, the investigation and recovery process will take away time and attention from daily business operations. Employees must refocus on addressing the issue, potentially canceling holidays and putting aside other personal commitments.

This is all in addition to the financial loss caused by the data breach. Data breaches are also known to cause damage to a brand’s reputation. Customers will lose trust in a company and may stop using the service or product altogether, especially for companies that have previously suffered from data breaches.

It is important to note that the reputational damage a company suffers from a data breach depends on its history and perceived duty to protect customer information. For example, a company with a reputation for excellent cybersecurity practices might face backlash from consumers who might see the breach as an act of irresponsibility. However, this damage can be lessened by being transparent with consumers and the public about the incident, according to the global crisis, risk, and reputation strategist Davia Temin.