Lost in the Breach: Unpacking the Fallout of Cybersecurity Incidents on Consumer Trust

In a rapidly digitising world where technology permeates every aspect of our lives, cybersecurity has become an integral part of our everyday vocabulary. For businesses, this signifies that data security has evolved into a crucial component of their operations. The level of data security directly impacts the trust customers place in a brand. Consequently, this trust exerts a significant influence on customer engagement and their affinity towards the brand.

According to Surf Shark, India ranked fifth in the world by the number of data breaches for Q1 of 2023. While many studies primarily focus on the immediate financial costs businesses incur due to data breaches, such as profit drops or revenue losses, the true impact on businesses can be much more profound. Breaches have the potential to affect the long-term relationship between customers and the brand, extending far beyond short-term financial ramifications.

The After Effects of Data Breaches

• Loss of Consumer Trust– When a data breach happens, people lose faith in the company. This causes them to question whether they should continue doing business with the company. This loss of customer confidence can have long-lasting effects on missing out on potential revenue. Rising misinformation and record-breaking data breaches have put consumers on high alert, sharpening their values and lowering their tolerance for anything misleading. As per the latest report by Curve of Convenience, 48% of people in India would lose confidence in the brand after the events of a data breach.
• Financial Losses-  In cases where financial information is compromised, such as credit card details or bank account information, consumers may become victims of fraud or identity theft. This can result in monetary losses and significant inconvenience, further damaging trust in both the affected organisation and the broader digital ecosystem. In addition to this, as per an IBM report, 60% of organisations’ breaches led to increases in prices passed on to customers. This is usually done to compensate for cost-to-business but will result in a significant loss in the customer base of a company.

• Increased Liability for Business- When customers entrust their personal information to a company, they expect it to be adequately protected. If a breach occurs, it raises concerns about the organisation’s ability to safeguard data and make them liable for the shortcomings. Customers affected by a data breach may pursue legal action against the business for damages resulting from the breach. This can include financial losses, identity theft-related expenses, emotional distress, or other harm. Lawsuits and legal claims can result in significant financial liabilities, including legal fees, settlements, or court judgments, depending on the jurisdiction and the nature of the breach. As per the 2022 Thales Consumer Digital Trust Index, 8% of the total surveyed consumers have taken legal action against a company, in case of loss due to a data breach.
• Reputation losses and diminished goodwill- News of a breach spreads quickly, and negative publicity surrounding inadequate security measures can tarnish a company’s image. As consumers become more aware and conscious of data privacy, they may avoid doing business with organisations that have experienced a breach, affecting their reputation and bottom line. As per the 2022 Consumer Digital Trust Index referred to earlier, when it comes to protecting themselves, 21% of the total surveyed consumers worldwide, have stopped engaging with a company that has suffered a data breach.

Strategic Measures to Save the Situation

Understanding the consequences of a cybersecurity data breach is an essential first step on the road to safeguarding business. To mitigate liability and minimise the impact on customers<>, businesses should prioritise proactive measures such as implementing robust security procedures, conducting regular risk assessments, training employees on data protection, and establishing effective incident response plans. Timely and transparent communication with affected customers, providing support and resources, and taking appropriate remedial actions can also help reduce liability and maintain customer trust. Complying with applicable data protection regulations and seeking legal counsel to navigate potential liabilities are also essential steps for businesses to consider.

We at Rainmaker offer tailor-made services on Data Protection and Privacy and make it a priority to remain well-informed about the most recent developments and advancements in the realm of data privacy and security. We have developed a comprehensive resource kit on Data Protection and Privacy (DPP) to enhance the understanding of all stakeholders and to provide them with an all-inclusive solution in the form of a compliance checklist. 

Connect with us today to learn how we can help your business reduce the risks of a data breach.