Data breaches are not a new phenomenon - but the prevalence of new technology and criminal attacks means the actual cost of a data breach could be soaring for organizations.
In this article, we’ll look at common targets of these breaches, the effects this can have on companies in these sectors, and the true financial cost of data breaches.
A data breach occurs when unauthorized or confidential information is obtained through suspect and often illegal practices. Data breaches can occur as a result of malicious hackers, human error or system glitches.
This results in the loss of sensitive data which could contain personal, professional or financial information - the number of records lost can escalate into the millions. We’ve previously explored how data breaches have changed over time.
With increasingly severe consequences for organizations who fall victim to a data breach - from the financial effects to reputational damage - the imperative for an organization to protect itself against data theft has never been greater.
Data breaches usually fall into one of the following categories. The information is usually protected by privacy laws designed to protect consumers and organizations, so obtaining the data by illicit means is the only solution available to hackers and criminals.
These are broad categories, but data breaches can involve several types of compromised records - ranging from the unauthorized release of legal or redacted documents, to confidential research data conducted by an organization, and one of the most common breaches - security credentials such as passwords or PINs (we reviewed the 10 biggest data breaches of all time in our recent article).
The negative consequences of a data breach for an organization are multiple. Even taking account the potential costs financially (either as a result of compensation or legal fees), companies may also suffer reputational damage from negative press stories and consequently suffer lost business.
As one example, Heartland Payment Systems fell victim to a data breach in 2008 which resulted in the loss of over 100 million debit and credit card numbers. The company ended up accruing almost $140 million in expenses to cover compensation claims and fines, meaning the data breach (for which only one individual is serving prison time) had a significant financial impact.
In the 2006 TJX data breach, in which thieves stole more than 45 million records relating to credit and debit card numbers, costs escalated from an original estimate of $25 million to $256 million. The costs included lawsuits, investigation and computer system upgrades as a direct result of the breach. The disclosure had a negative impact on TJX’s stock price.
In addition, the reputational issues associated with a data breach have a quantifiable impact on a company’s bottom line. An annual report by the Ponemon Institute in conjunction with IBM Security found that, “...organizations that lost less than one percent of their customers due to a data breach resulted in an average total cost of $2.8 million. If four percent or more was lost, the average total cost was $6 million, a difference of $3.2 million.”
For the 2018 Institute Cost of a Data Breach Study, Ponemon spoke with more than 2,200 IT and data protection professionals from 477 companies that had experienced a recent data breach. Their findings aimed to provide a global overview of data breaches. The evidence showed that the breaches can have significant financial repercussions:
The chart below shows how, when looking at the average cost of a data breach for last year, organizations in the United States are adversely affected by data breaches compared with other countries and regions.
This article highlights that protecting your organization against the negative consequences of a data breach is vital, especially as hackers are utilizing every resource at their disposal to obtain sensitive information.
There are numerous guides available on the Internet offering payment security tips, advice on how to protect yourself against cyber attacks, and even calculators so you can estimate the cost of a data breach in your own organization. We’ve summarized a few of the most useful resources here.