Data Breach Fallout – How it Impacts Businesses and Consumers
Data breaches are a constant problem for businesses to deal with. They can steal customers’ personal information, devalue a company’s reputation or even make them lose valuable business. Consumers will no longer trust a company that doesn’t take its security practices seriously and will go to a competitor instead. The long-term damage can be catastrophic for the company.
A data breach can have a disastrous impact on a small business. Over 60% of SMBs will shut down within six months after a cyber incident. It’s not just the financial costs incurred by companies and agencies; it’s also the reputational damage that can lead to a loss of future customers. People will only do business with organizations they trust and feel confident they can protect their personal information.
When a company has been hacked, consumers will look to conduct their business with a competitor who’s not suffered from a data breach. A massive breach can lead to class action lawsuits, government investigations and even congressional inquiries. For example, Banner Health is facing a consolidated class action lawsuit and a Department of Health and Human Services investigation related to a 2016 hack that compromised personal data, including names, addresses, social security numbers, dates of birth, driver’s license numbers and credit card information. Data breaches can also result in a loss of employee morale and a decline in productivity. It’s common for employees to lose confidence in a company following a breach, which may lead to them searching for jobs elsewhere. Additionally, the stress associated with mitigating a violation can cause some employees to quit.
Loss of Customer Trust
A business can be hit with several costly consequences of data breach, but the most significant costs can come from losing consumer trust. Individuals trust the companies they do business with to protect their personal information, but if that trust is broken – especially if it’s one of the largest breaches in history like Equifax, in which 143 million records were compromised – consumers may take their business elsewhere.
A cybersecurity firm can help a business mitigate some of the damage from a data breach by installing firewalls, anti-malware and antivirus software, and creating policies on how employees can use company devices, transfer files and update their computer systems to reduce the chance of a breach.
Employing these practices can reduce the chances of a cyberattack and, if it does happen, will save the business money in customer repayments, fines, legal fees, and reputational damage. The damage from a data breach can be long-lasting, but the impact can be even more devastating for small businesses and agencies.
Many of these companies rely on their customers to support them by giving them their credit card details or providing their personal information, and they can only afford to retain those customers due to a breach. According to a study, 69% of customers will avoid or stop doing business with a company that suffers a data breach.
A data breach can damage a business or organization’s reputation. In large companies, violations may result in people associating that company with the incident rather than its normal operations. This can have an impact on the financial bottom line, as well. For example, Target and Yahoo suffered from this effect after their respective cyberattacks. The fact that people associate those brands with their breaches can mean that they’re less likely to be the first choice for future transactions. A company’s reputation can suffer even more depending on the information compromised. For example, if hackers gain access to confidential government documents, it could affect their ability to continue operating and interacting with citizens. This is particularly true if the information exposed is related to military operations, political dealings, or details about essential national infrastructure. A breach can damage a company’s reputation if it takes too long to disclose the attack and what happened publicly. For instance, when it took a while for Uber to reveal its 2017 hack, the company’s reputation took a serious hit. Consumers may believe the company is more concerned about boosting its share price than caring about its victims. This can lead to them switching to a competitor with more compassion and transparency in its approach to privacy.
Loss of Customer Business
A data breach can lead to a loss of customer business. Research shows that up to a third of consumers will stop doing business with a company following a data breach. This is especially true for retail, finance and healthcare companies.
The reason is that hackers gain access to sensitive personal information. This can include everything from a person’s full name, SSN, driver’s license number and credit score to email addresses, IP addresses, passwords and biometric data. Those details can be used to steal money, get jobs, apply for loans and even take over people’s identities. Companies that suffer a data breach must spend time and money attempting to mitigate the damage. They will have to pay for services to clean up the mess, compensate customers and possibly face lawsuits. The costs of handling a data breach can be a major blow to a company’s bottom line. The loss of customer business can also result in a drop in share price. This happened to Yahoo, which suffered a large breach in 2014 that compromised 3 billion accounts. The attack was only revealed in 2016, which hurt the company’s value in acquisition discussions with Verizon and led to a USD 350 million discount in its purchase offer. Share prices can fall anywhere from 2 to 12 percent in the weeks after a data breach is announced.