Navigating financial data security

Unsurprisingly, 60% of small businesses say cybersecurity threats (including phishing attacks, malware, data breaches, and ransomware attacks) are a top concern.¹ After all, if sensitive financial data like a customer’s credit card number or your company’s tax records is mishandled, the consequences can be immediate and costly.

Yet, despite these worries, many small businesses remain underprepared. Only 48% of small businesses report having trained staff on preventing cyberattacks in the past year.¹

Read on as we walk through the key types of financial data at risk, explore why financial data security matters, and outline best practices to help small businesses stay ahead of threats.

Common financial data security threats

Small businesses face a growing number of financial data security risks, chiefly due to the rapid expansion of unsecured networks, increased use of personal devices, and lack of data monitoring associated with remote work.²

Here are some of the most common threats to be aware of:

• Malware: Malware can enter your system through something as simple as downloading a vendor invoice or clicking a fake tracking link. Once installed, it can spy on activity, capture keystrokes, or install backdoors without detection. For a small business using cloud-based accounting or online banking, this can expose everything from payroll data to tax IDs.

• Ransomware: In a ransomware attack, your files (including financial records, invoices, or payroll spreadsheets) are locked and held for payment. Many small businesses lack backups or emergency protocols, which can turn a few hours of downtime into major lost revenue. In some cases, businesses feel forced to pay the ransom just to resume operations.

• Phishing attacks: These aren’t always easy to spot. An employee might receive an email that looks like it's from the business's bank or payment processor, asking them to "verify account details." Just one click can compromise login credentials, giving fraudsters access to sensitive financial information.

• Remote work vulnerabilities: Employees working from home may use personal laptops, rely on unsecured Wi-Fi, or skip software updates. Without centralized data monitoring or enforced financial data security policies, small businesses often don't know if something's wrong until the damage is done, like unauthorized charges or a breach notification from their payment provider.

How hackers gain access to financial data

Understanding how cybercriminals break in is just as important as knowing what they’re after. In many cases, breaches don’t involve high-level hacking but are simply a result of human mistakes, overlooked system updates, or old-fashioned deception.

Some common ways attacks gain access to sensitive financial data include:

• Stolen credentials: Accounting for 16% of all breaches, passwords remain one of the weakest links.² Whether through credential stuffing, phishing, or leaked login data, attackers can gain access to accounting platforms, payroll systems, or business bank accounts.

• Social engineering and phishing attacks: These hacks use psychological manipulation to convince staff to share sensitive data, often by impersonating a legitimate contact.

• System vulnerabilities and IT failures: Unpatched software, outdated plugins, and improperly configured cloud tools offer easy entry points. Many small businesses rely on third-party platforms for everything from payment processing to payroll, so if those systems are outdated or misconfigured, they can become high-risk targets.

• Structure Query Language (SQL) injection: An SQL injection attack uses a programming language to add malicious code to a business’s database queries. This can allow attackers to extract or corrupt sensitive financial records.

• Human error: Whether it’s mistyped email addresses or unsecured personal devices, small missteps can add up. Without basic training and policies in place, employees may unintentionally open the door to serious threats.

• Physical security breaches: Not all financial security data attacks are digital. Break-ins at offices, co-working spaces, or retail locations can lead to the theft of hard drives, laptops, or printed financial documents. Meanwhile, card skimming (where criminals install hidden devices on payment terminals) can silently collect credit card numbers in physical stores, often going unnoticed for weeks.

The importance of financial data protection

The principal motivation for hackers is financial gain, making payment data an obvious target. And with the average cost of a data breach reaching $4.88 million globally, attacks can devastate small businesses, even if impacts don’t reach that number.²

Here are some common consequences of a data breach:

• Financial penalties: Data breaches can result in significant fines, including penalties for not following payment card industry security standards like PCI DSS, which can be especially costly for businesses handling customer payment information. Learn more about PCI DSS compliance.

• Customer lawsuits: If a breach affects customer payment data, businesses could face class-action lawsuits from those impacted, especially if an investigation shows that you didn’t take reasonable steps to secure their information.

• Reputation damage: One study found that 66% of data breach victims would lose trust in a company after a data breach.³ Negative press and online reviews can stick around long after the breach is resolved.

Types of financial data at risk

Here are some of the most commonly targeted types of financial data:

• Customer payment data: Credit card numbers, CVVs, and billing addresses can be used to make unauthorized purchases or cloned for physical card fraud.

• Bank account and login details: Business or employee banking details, along with usernames and passwords, can give attackers direct access to accounts, allowing them to initiate transfers, withdraw funds, or intercept payroll.

• Payroll and employee data: W-2s, pay stubs, tax ID numbers, and salary information are highly sensitive. Criminals can use these details to commit tax fraud, file false unemployment claims, or reroute paychecks.

• Personally identifiable information: Names, dates of birth, and Social Security numbers can be used to open fraudulent credit lines, apply for benefits or insurance, or even create fake passports and IDs. This data is often sold in bulk to identity thieves.

• Health and benefits information: Access to insurance details can allow bad actors to receive medical treatment under someone else's name or commit healthcare fraud. This is particularly risky for businesses that store employee benefit data in unsecured systems.

These are just a handful of examples — fraudsters may target any financial data they can exploit.

Best practices for financial data security

No matter the size of your business, protecting financial data requires a multi-layered approach. Use these basic safeguards to reduce risk:

• Data encryption: Encrypting sensitive data makes it unreadable to unauthorized users, significantly reducing the risk of data theft. Encryption methods include symmetric encryption (where the same key is used to both encrypt and decrypt a data set) or asymmetric encryption (which uses different keys).

• Access control measures: Businesses can control and monitor access to financial data by using two-factor authentication and the principle of least privilege, whereby users have access to the bare minimum of sensitive data needed to fulfill their role. A clear audit trail will allow organizations to identify a potential breach quickly and mitigate the damage.

• Regular software updates: Software and operating system vulnerabilities are fixed in regular updates. A business may not have access to these protections if it uses an older version of a platform, meaning updates should be automatically installed as soon as they are available.

• Employee training: Cybersecurity education helps staff understand their role in preventing data breaches. This training should be immediate for new starters and regularly refreshed for established team members. Many organizations send out occasional dummy phishing emails to find employees requiring extra training.

• Backup and disaster recovery plans: Even with the best precautions, things can go wrong. Backup and disaster recovery (BDR) helps business continuity in the event of a data breach. A comprehensive BDR plan will specify when and where to back up, outline processes to follow depending on what caused the data loss, and include a timeline for data recovery.

Secure payment processing

To securely accept customer payments, a business must meet 12 PCI DSS requirements for financial data protection, including:

• Building and maintaining firewall protection

• Encrypting transmitted cardholder data

• Limiting access to cardholder information on a need-to-know basis

• Regularly testing systems and monitoring networks for vulnerabilities

Businesses are also required to use encrypted payment gateways and tokenization for card data protection, which replaces card details with randomly generated tokens that are useless if intercepted. These tools make card data much harder for attackers to access, even if a breach occurs.

Collaborating with trusted processors

Shared data is vulnerable data, especially when it comes to customer payments. If even one of your vendors fails to follow proper financial data security protocols, your business could be exposed to a breach through no fault of your own.

For this reason, businesses should only work with reputable vendors that take financial data security seriously. Keep these qualities in mind when choosing trusted collaborators:

• Transparent data practices: Vendors should clearly explain how they store, transmit, and protect sensitive data, as well as the protocols they follow in the event of a breach.

• Compliance with industry standards: Ensure third-party payment processors are PCI DSS compliant and regularly audited. They should also follow any additional regional or sector-specific financial regulations relevant to your business.

• Strong financial data security infrastructure: Look for partners who use data encryption, tokenization, real-time monitoring, and system updates to keep your data safe.

• Clear contracts and SLAs: Your agreement should outline each party’s responsibility in maintaining financial data security, responding to incidents, and notifying stakeholders.

• A proactive approach to risk: Ask what measures they’ve taken to guard against emerging risks like ransomware or cloud misconfigurations.

Data retention policies

Holding onto sensitive financial data for longer than necessary can create big headaches if a breach happens. That’s why every business should have clear data retention policies and data disposal guidelines that cover:

• What you're keeping: List out the types of financial information your business stores, like customer payment details, payroll records, invoices, or tax documents.

• How long you’re keeping it: Set clear retention timelines for each data type. For example, keep tax records for seven years (per IRS guidelines) but delete saved card data immediately after processing unless there's a legal reason to store it.

• Who can access it: Only give access to people who absolutely need it, like your accountant, bookkeeper, or operations lead. Avoid shared logins and use role-based permissions in your systems whenever possible.

• Where it’s stored: Identify whether the data lives in cloud software, on physical devices (like office laptops), or in paper files. Make sure all digital storage uses encryption, and all physical files are locked away securely.

• How it’s deleted: Don’t just drag files to the trash. For digital records, use secure deletion software that overwrites the data. For paper documents, use a shredder or a secure disposal service.

• When you review the plan: This living document should be updated as regulations, storage environments, and backup solutions change. At the minimum, try to schedule a yearly review.

Regulatory compliance

Regulatory compliance plays a major role in protecting financial data. By following clear standards for how data is collected, stored, and shared, you lower your business’s data breach risk level while building trust with customers and collaborators.

Different businesses need to meet different national and international data regulations, based on where they are regulated.

Monitoring and detecting financial data breaches

Spotting a financial data security breach early can mean the difference between a quick fix and a full-blown crisis. Luckily, with real-time data breach prevention tools, small businesses can catch red flags faster, contain threats, and bounce back more quickly. Similarly, a well-defined incident response plan can prevent data loss, save time and money, and create a more secure and compliant data storage environment going forward.

It also pays to keep a clear data audit trail — essentially, a log of who accessed what, when, and where. This is especially helpful during investigations or when regulators come calling. Tools like intrusion detection systems and security event monitoring can automatically flag malicious activity in a business’s network and alert your team when something doesn’t look right.

If a financial data security breach does happen, businesses should⁴:

• Secure systems: Take affected equipment offline immediately to secure your operations. Lock physical areas related to the breach, change access codes, and address vulnerabilities that may have caused the incident. Wait for forensic experts before turning off any machines.

• Prevent additional losses: Update all credentials and passwords for authorized users immediately. Monitor all entry and exit points, especially those involved in the breach, and replace affected systems with clean machines where possible to stop further data loss.

• Work with data forensics specialists: Hire independent forensic investigators to determine the source and scope of the breach. They'll capture forensic images of affected systems, analyze evidence, and provide remediation steps to guide your recovery efforts.

• Understand legal and regulatory requirements: Check state and federal laws for notification requirements specific to your situation. All states have breach notification laws, and additional regulations may apply depending on the type of information compromised.

• Develop a communications plan: Create a comprehensive plan to reach all affected audiences, employees, customers, investors, and business partners. Provide clear, honest information about what happened without withholding details that could help people protect themselves.

A secure future through financial data protection

Financial data security compliance is the responsibility of all businesses. Clear regulatory requirements, comprehensive audits, and practical recovery processes can help to protect both small businesses and their customers from potential hackers.

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