Should Small Businesses Worry About Data Breaches This Tax Season

This Holiday Season is Here… Should Small Businesses Worry About Data Breaches?

The holiday season is just around the corner, which means that retailers will be dishing out deals and specials to attract countless customers. While these customers are more than ready to spend, the danger of data security may keep them from doing so. Millions of customers have already taken hits from malicious hackers earlier this year.

 

Unhappy Clients

Measuring Consumer Unrest

The unsettled nature of the consumer is apparent with CreditCards.com’s recent survey. The credit card comparison website asked consumers if they would make purchases from retailers that had been hit by hackers earlier this year.

A resounding 45 percent of the 864 respondents with credit or debit cards answered that they would not. The threat of repeat data breaches was simply too big of a threat for them to risk shopping at these retailers this holiday season.

To make matters more complicated, 48 percent of those who responded said that they would use nothing but cash at retailers this year. They cited that cash would keep their financial details safe. This only shows how distrust in the abilities of affected companies to keep data safe is growing.

 

The Importance of Cyber Security

With the numerous incidents that have already occurred this year of retailers losing valuable data to hackers, the concern of cyber security is growing. Major retail chains such as Neiman Marcus and Home Depot were hit by malicious entities. These attacks left millions of customers affected.

The threat of cyber attacks is more apparent with consumers than ever before. In a recent Gallup Poll, 69 percent of participants responded that they were more worried about their financial details being stolen than any other crime. This makes lost financial information more important than burglaries or even domestic terrorism in the minds of Americans.

 

Small Doctor Business office

Understanding a Security Breach

The inherent problem with digital financial data revolves around the same mechanism that makes credit and debit cards convenient: the customer swipes their card, and the store’s register saves the customer’s card number and PIN. This is what enables the transaction to complete.

This problem with this convenient information is that it’s too easy to steal. Malware located anywhere from the register to the systems that keep track of financial transactions can steal this information. This same information can then be downloaded offsite by a malicious individual almost anywhere in the world.

Once the credit and debit card information of enough customers has been obtained, it can be bundled and resold. Black market websites purchase this data for anywhere from $2 to $20 per card. The more recent the information and the higher the limit, the more this data is worth to criminals.

When the buyer obtains the information, they use it to reproduce cards virtually or physically. They can then purchase goods from retailers using this stolen information, which they resell for a profit. This leaves financial institutions footing the bill.

Should Small Businesses Worry?

While it’s obvious that the typical consumer values their financial data highly, the impact digital theft has on financial institutions and small businesses is anything but clear. Most major credit cards have fraud protection built into them. This allows consumers to be free and clear in most situations where credit card fraud from a third party is involved.

Even the damage resulting from stolen debit card information is short-lived. While the money is taken out of a person’s bank account immediately, these funds are typically returned.

The bottom line is that someone ultimately has to foot the bill for the money that these criminals steal. The consumer typically sees this in increased fees, which in turn affects everyone. This means that while the individual does not necessarily foot the bill, everyone does pay for it.

As shown earlier, businesses also pay for these kinds of data breaches. They lose business not only from the fact that their customers have less money from paying more fees, but also because their reputation is tarnished. Security is still an essential part of attracting customers.

Tax Data Breaches Happen

One segment of data that most business don’t realize they need to protect most is their tax data. Every business owner and accountant should think about this every time the file 1099 online. Tax records and other accounting shared in the e-filing process from their system to the IRS’s system (or a 3rd party e-filer) needs to be particularly secure.  Some industry e-file SaaS leaders – like eFile4Biz – are stepping up their security measures to ensure that data is secure on both sides of any data shared.

They recently posted a newsletter article that covers the basics ANY e-file provider needs to adhere to when you efile 1099. They recently produced an explainer video you may find useful as well.

 

Potential Solutions for Safeguarding Data

It’s possible that the big data breaches will lead to less profit over the holiday season for companies that were affected earlier this year. Some analysts state that consumers will still shop at the same stores this year. Sales seem to win over security, especially when the idea of how minimal an impact digital theft has on consumers is realized.

Other experts argue that the above cited surveys show a greater demand for digital security from retailers. The idea is that businesses with better security may actually end up receiving more profit when other big breaches inevitably occur.

For example, some customers already feel safer when they shop at retailers that were previously hit by hackers. They state that the publicity these breaches earned earlier means that these retailers must have heightened security. With Target, new security experts were hired and additional security measures were put in place as a result of the breaches. An even newer technology that scans the magnetic strips and then encrypts the data before passing it along to the financial back-end is also being implemented in Target stores. This technology will likely soon see even more widespread use next year.

One thing that is for certain is that the liability of credit card fraud will soon shift from the credit card companies to retailers. This gives everyone, from major retailers to small businesses, major incentive to update their financial security technology.  Stop by our Delicious page, and post your comments or resource links to debate this matter further.

 

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