How Much Should Investors in Target, Credit Card Firms Expect as Costs for Data Breach?

By Stephanie Taylor Christensen  DEC 20, 2013 10:30 AM

Target appears able to manage this crisis, but the bill for this crisis will be substantial.

 


Though the news that customers who shopped at Target (NYSE:TGT) stores November 27th through December 15th may have had their debit and credit card data breached is troubling, the potential cost of the aftermath may be just as concerning to investors in both the retail giant and the financial institutions impacted. Here’s a look at how quickly the costs of a security breach like the one Target recently announced can escalate.
 
According to the benchmarking study, 2013 Cost of Data Breach (sponsored by Symantec and conducted by the Ponemon Institute) the average cost of a data breach in the United States is $188 per record. Though the actual figure Target will absorb depends on a variety of direct and indirect expenses, including detection, escalation, and notification, the latest reports are that an estimated 40 million customer records have been potentially compromised. Back in 2007, when retailer TJX (NYSE:TJX) suffered a breach of credit and debit card data that impacted more than 45 million customers, the total price tag rang in at a whopping $256 million.
 
Though Target has stated only that it is “partnering with a leading third-party forensics firm to conduct a thorough investigation of the incident,” the “why” behind a breach and a retailers’ reaction to it impacts costs as well. Though the benchmarking study indicated that malicious and criminal attacks prove the most costly across the globe and can increase the cost per breach to $277 in the United States, organizations that have a firm response plan and partnership with security consultants, which Target appears to have, are better equipped to manage the costs. The study also indicates that compared to healthcare and financial companies, who have robust, sensitive data at stake, retailers actually face the lowest costs in a breach like this.
 
As for the credit issuers impacted? In this case, Information Security Media Group reports that MasterCard (NYSE:MA) and Visa (NYSE:V) both issued alerts related to the attack, which enable such institutions to spot potential fraud before significant costs are accrued. However merchant insurance provider Royal Group Services places the average cost per record breached at a financial institution at $280. 
 
Aside from those figures, however, there is the intangible potential loss that last-minute holiday shoppers who would otherwise shop at Target will spend elsewhere, trusting their data instead to its competitors in the midst of the uncertainty.

Twitter: @WellnessOnLess
No positions in stocks mentioned.

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