Long-term consequences of a data breach: Prevention strategies and recovery roadmap creation

What constitutes a data breach differs between organizations. However, it is generally described as the loss of sensitive business data and personal information. The consequences of a data breach are immediate, and the long-term effects can have a devastating impact on a business for months, or even years.

Safeguarding against data breaches is essential to prevent financial loss, reputational damage, operational disruption, and legal and regulatory consequences. It is only by fully appreciating the potential impact of a breach that small businesses can take steps to mitigate the risk.

What is a data breach?

A data breach occurs when an unauthorized party gains access to sensitive or personal information. This includes social security numbers, health information, and bank account details. Data breaches also include the loss of sensitive company information, such as financial records or customer details. In addition, the theft of physical data, such as hard drives, thumb drives, and physical papers containing sensitive information, constitutes a data breach.

Despite the rapid advancement of digital security technology, data breach incidents are reported regularly around the world. Signs of fraud that indicate a data breach include unusual login activity, file changes or manipulation, locked accounts, the appearance of suspicious or unknown files, missing assets or funds, and abnormal admin activity. One way you can protect your business from data breaches is by ensuring PCI DSS compliance is up to date.

What causes data breaches?

Most commonly, data breaches are due to:

  • Theft of user credentials, including usernames and passwords.
  • Use of malware, or malicious software, which enables a hacker to exploit a system.
  • Poor optimization of permission processes, with permissions being given to the wrong people or not being regularly updated.
  • Poor application management where applications are poorly written and easily accessed by hackers.
  • Physical attacks whereby criminals physically breach a building and obtain information from within.
  • Social engineering, such as hard to spot phishing or spoofing attempts, when employees are sent emails that appear to be from an official source or contain external links.
  • Insider threats, where rogue or disgruntled employees knowingly copy, alter, or steal information.

What are the long-term consequences of a data breach?

Financial hardship is one of the most serious consequences of a data breach. While bigger companies can weather the fallout, small businesses may be forced to shut down permanently. Beyond the financial impact of a data breach, there is the effect on reputation, a company’s attractiveness to future employees, and the urgent need to overhaul or tighten operations.

Financial fallout

The real cost of online fraud is huge and can severely impact a business’s long-term sustainability. According to IBM’s Cost of a Data Breach Report 2023, the global average data breach cost is $4.45 million, an increase of 15% in the last three years3.

This figure includes:

Incident response and data recovery: Quarantining affected software and hardware, analyzing logs, documenting the findings, and fixing the leak.

Loss of sales: Customers losing trust in a company and going to competitors.

Potential downtime: This is particularly problematic in the case of a ransomware attack, where hackers hold data or control internal systems and will only relinquish control if a ransom is paid. A business must weigh up the cost of paying the ransom against lost sales.

The long-term cost of fixing the breach: Improving systems and introducing stringent security measures.

Legal ramifications and fines: This will depend on size of breach, type of data stolen, industry, geographical location, and a company’s initial response to the breach.

Reputational consequences: How trust is eroded after a data breach

The reputational impact of a data breach should not be underestimated, impacting an established brand in days. Customers may disengage with a business that cannot guarantee data protection and turn to competitors instead.

Long term, the reputational damage can make it difficult to acquire new customers. A company must then work doubly hard to prove its data security credentials going forward.

Legal and regulatory repercussions of a data breach

The legal consequences of a data breach are far-reaching and complex, with laws at both federal and state level. The consequences will depend on the size, length, and nature of the breach. Some of the main ones are:

HIPPA: The Health Insurance Portability and Accountability Act 1996 is a national standard created to protect sensitive patient data. The Department of Health and Human Services can impose civil penalties of between $100 and $50,000 per violation4.

FTC: Under the Federal Trade Commission Act, civil penalties of up to $40,000 per violation can be imposed5.

COPPA: Regulatory fines for data breaches can be imposed under The Children’s Online Privacy Act.

CCPA: Under the California Consumer Privacy Act, there is a private right of action with statutory damages of up to $750 per consumer per incident6.

Other remedies include private legal action and class action lawsuits.

Operational disruptions: How data breaches disrupt productivity

In the immediate aftermath of a breach, a business may be forced to shut down some or all operations to contain the breach and conduct investigations. How long this lasts and how severely the business is compromised will depend on the size and nature of the business and the scope of the breach.

Operational disruptions include:

  • Loss of sales
  • Difficulty dealing with customer enquiries
  • Long-term damage to operational efficiency

Impact on customer relationships and loyalty

A data breach can result in a loss of customer loyalty as customers choose brands perceived as having better data security.

A business must work hard to restore confidence and trust post-breach by demonstrating a commitment to data and privacy and implementing an improved security strategy. Most importantly, a business should communicate the actions it takes to its customers to improve relations.

Preventing data breaches: Building a resilient defense

The strongest businesses are those that proactively take steps to prevent data breaches, rather than merely reacting when they occur. Building a strong defense can reduce business risk and the risk of cyber fraud.

Follow these strategies to help identify the types of risk for a business and prevent data breaches:

Cybersecurity risk assessments: This involves compiling a list of information assets, identifying areas of risk or concern, analyzing the risk, and implementing security features to control it. Then, business owners must monitor their security’s effectiveness over time.

Cybersecurity audits: Technology moves fast, so it is important to keep pace with the latest cybersecurity best practices. Regularly conduct audits to check if existing security defenses need updating.

Robust access controls and encryption: Set strict limits on who can access data to prevent it from falling into the wrong hands. Encryption converts data into code, which also helps avoid unauthorized access.

Educate employees: Ensure staff are cognizant of company security practices. Additionally, include security training in the onboarding process and regularly review it.

Navigating data breach recovery: Rebuilding trust and business resilience

Learning how to recover from a data breach is essential for long-term survival. Creating a well-structured recovery process can mitigate both the damage post-breach and the risk of data threats moving forward:

Develop a detailed recovery plan: Create a plan of action tailored to the breach. This must include response teams, a communications list (regulatory authorities, insurers, legal counsel, cybersecurity specialists, IT experts, and PR handlers), and procedures for isolating affected systems and recovering data.

Assess business continuity: Maintain operational functionality as far as possible to reduce downtime and lost sales. Consider creating a business continuity plan for potential future breaches.

Demonstrate accountability: Take responsibility for the breach and make commitments to prevent a repetition.

Engage legal counsel: Collaborate with legal teams to handle data breach legal obligations.

Continue to monitor: Regularly monitor and update cybersecurity practices and update online fraud prevention steps as necessary.

How PayPal can help you mitigate the risk of data threats

A data breach can be calamitous for a business. It can affect the core of an organization and have long-term repercussions. But the true cost goes beyond dollars and cents: it involves the preservation of trust and reputation and the very survival of a business.

It is crucial to remember that such breaches are not an inevitability. With proactive planning and robust cybersecurity implementation, businesses can protect themselves and mitigate various security challenges they may face.

PayPal’s risk management solutions use machine learning and extensive experience to create tailored security measures for businesses.

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