Data privacy affects all of us, which is why it’s so important.
To sustainably use personal data, businesses must build trust with customers, implement proper legal and security measures, and use it for reasonable, necessary purposes.
Below, I explain in detail why data privacy is important and how it can benefit your business and protect your consumers, and we hear from an industry expert.
Overview of Data Privacy
Data privacy refers to the concept of keeping individuals’ personal data as private as possible.
You may be thinking: How can I use that data if I have to keep it private?
Well, privacy does not mean you can’t collect, use, or share personal data — it means you should do so transparently while obtaining adequate legal consent from individuals and providing appropriate protections.
In fact, several different data protection laws instruct businesses how to protect personal data so they can benefit from it fully, such as the:
I’ll discuss these laws and others later on. But for now, let’s explore why businesses collect and use this information in the first place.
Why Do Businesses Collect Personal Data?
Personal data is an essential component for modern businesses that makes up the foundation of many operations and is the means to keep them running.
For businesses that operate online, your revenues likely directly depend on how much personal data you collect, use, or share and it may come from several sources:
- It may belong to your customers for your customer relationship management (CRM)
- It may come from Search Engine Optimization and Marketing (SEO/SEM)
- It may originate from your end-users for usage analytics
Either way, this precious information helps you maintain quality customer services and products in today’s online ecosystem.
Personal Data vs. Sensitive Personal Data
When it comes to the data that businesses need to keep private, I’m referring to a specific legal definition of two terms: personal data and sensitive personal data.
Personal data, sometimes also called personal information, legally means any information that, alone or combined with other details, could directly identify an individual or a household.
Personal information includes attributes like:
- Names
- Email addresses
- Home addresses
- Phone numbers
However, due to its vulnerability, sensitive personal data is subject to stricter requirements under most data privacy laws and includes attributes like:
- Political, philosophical, or religious beliefs
- Race or ethnic origin
- Gender identity
- Sexual orientation
- Health data
- Biometric data
- Personal identification numbers
- IP addresses and precise geolocations
Why Is Data Privacy Important?
There are several compelling reasons why data privacy is important for businesses of any size, which I’ll cover in great detail in this next section, but here’s a quick summary:
- It helps you comply with applicable data privacy laws
- It helps you gain and retain customer trust
- It helps you build effective data management practices
- It helps minimize the risks and costs of a personal data breach
- It helps you adapt to tomorrow’s world wide web
- It helps you keep up with changing technology
I also asked data privacy attorney Gregory Manwelyan, CIPP/U.S., why data privacy is important for businesses of all sizes.
He listed four vital reasons, three of which impact entities far beyond complying with data protection laws, “Prioritizing data protection ensures legal compliance, financial stability, and sustained reputation, fostering a culture of trust among customers and stakeholders.”
“This is important to businesses of all sizes because legal, financial, and reputational repercussions can have a severe negative impact on any business.
While legal compliance is undoubtedly a necessary part of data privacy, its importance expands far beyond meeting applicable legislative regulations and guidelines.
Not only is the modern customer more internet-savvy than ever before, but businesses face additional challenges, like the rise in cybercrimes and data breaches.
Becoming a privacy-literate business can help mitigate those risks while enhancing consumer trust — a true win for all involved, is it not?
Now, let’s take a deeper look into why data privacy is important:
Data Privacy Helps You Comply With Applicable Data Privacy Laws
Complying with applicable data privacy laws is the most apparent reason why data privacy is important, especially for business owners who want to protect themselves from legal liabilities.
Data privacy laws typically protect individuals based in the region where the law passed but apply to entities worldwide if they meet specific thresholds.
Your business could be impacted by more than one of the following:
- General Data Protection Regulation (GDPR)
- Data Protection Act (U.K. GDPR)
- California Consumer Privacy Rights Act (CCPA/CPRA)
- California Online Privacy Protection Act (CalOPPA)
- Connecticut Data Protection Act (CTDPA)
- Colorado Privacy Act (CPA)
- Children’s Online Privacy Protection Act (COPPA)
- Virginia Consumer Data Privacy Act (VCDPA)
- Personal Information Protection and Electronic Documents Act (PIPEDA)
- Quebec’s Law 25
- Australia’s Privacy Act of 1988
- New Zealand’s Privacy Act of 2020
- Protection of Personal Information Act (PoPIA)
The list above only represents a small portion of all of the privacy legislation that exists throughout the world.
“Those that fail to adhere to privacy laws can face costly (and possibly critical) fines.” – Gregory Manwelyan, Privacy Attorney, CIPP/U.S.
Depending on the law, your business may also be required to stop its data processing activities.
Data Privacy Helps You Gain and Retain Customer Trust
One of the less obvious benefits of data privacy? Privacy-literate companies gain and retain more trust with consumers.
Trust is essential.
Today’s internet users are increasingly aware of how their information is used by businesses — for the good and the bad.
For example, consumers are more aware than ever that tech giants like Meta, Google, Apple, and others build their empires on personal data.
Check out these findings from a recent International Association of Privacy Professionals (IAPP) report:
- 68% of consumers globally are ‘somewhat or very concerned about their online privacy.’
- But only 29% of consumers said it is ‘easy for them to understand how well a company protects their personal data.’
The gap between expectations for privacy and the actual perception of privacy is significant as it represents a great opportunity for businesses to build long-term trust with customers.
Therefore, it’s no surprise that businesses that add privacy to their value proposal or are transparent about their data management practices gain more consumer trust and retain better relationships overall.
Data Privacy Helps You Build Effective Data Management Practices
Data management is the ability of a business to use available information effectively, and implementing proper data privacy protocols helps you do this more efficiently.
When using personal data, effective management helps your business:
- Boost sales
- Provide more relevant marketing content
- Enhance and improve customer experience
- Improve customer support
Privacy principles such as ‘purpose limitation’ and ‘data minimization’ actually benefit a business’ marketing, where sanitized CRM databases are essential.
The crossover between marketing and privacy is easy to overlook but can remarkably improve your business’s ability to organize its campaigns and communicate more effectively.
Secondly, efficient data management helps your business provide better control to your customers over their personal data.
Most data protection laws give individuals more control over how businesses collect and use their personal information.
For your business, that means setting up internal personal data management, like:
- Using Data Subject Access Request (DSAR) forms to respond to customer requests
- Publishing a privacy policy to communicate with your users honestly
- Using a cookie consent banner and preference center to give consumers a choice
Additionally, data privacy practices, such as data mapping, help address the challenges your business may face regarding fulfilling consumer requests by guiding you on how to manage personal data.
Data Privacy Helps You Minimize Risks and Costs of a Personal Data Breach
Another reason why data privacy is important? It helps reduce the costs in the case of a personal data breach.
A personal data breach happens when a security incident leads to accidental or unlawful destruction, loss, alteration, unauthorized disclosure of, or access to personal data.
It can range from an email sent to the wrong customer that includes sensitive information to the full compromisation of an entire IT system by malware.
According to Manwelyan, “Data breaches can also lead to loss of customer trust and loyalty, as well as businesses incurring costs for data recovery, legal actions, and reputation management in the aftermath of a breach.
To reduce these risks, he suggests the following, “Adequate data protection measures, such as encryption, access controls, and regular security audits, are vital to mitigate risks.”
The financial costs of a data breach
Economically, the costs associated with a personal data breach are very steep.
In part, the costs are because data protection laws have fixed penalties and fines related to breaches and the mismanagement of personal data.
Under the GDPR, fines can reach up to €20 million, or 4% of the company’s global revenue, for the most severe infringements.
In addition, some laws — like the CCPA — provide a private right of action that can bring further costs to a business.
On top of that, any security incident involves operational costs for a company to review and improve its systems so that the incident does not repeat.
A report by IBM found that the average price of a data breach in 2023 was $4.45 million, representing a 15% increase over three years.
The reputational costs of a data breach
An overlooked cost of a personal data breach is how it affects a business’s reputation.
Often, a personal data breach is brought to the attention of regulators and the public, leading to negative customer perception.
Exposure like this can take a long time to disappear, usually inducing communication and public relations costs.
However, businesses with robust, transparent privacy practices regarding personal data management will likely be less impacted by a breach.
While data breaches are always regrettable for a business and the affected individuals, demonstrating that you implemented data protection measures to avoid the breach can help alleviate sanctions from regulators and public scrutiny.
Data Privacy Helps You Adapt to Tomorrow’s World Wide Web
Data privacy is important because it helps you prepare your business for the future.
Think about it.
The development of AI, the imminent end of third-party cookies, and the yearly — if not monthly — apparition of new data protection laws constantly impact our online ecosystem.
Each of these brings specific challenges to businesses, like how to:
- Compliantly harness the power of AI.
- Adapt marketing and advertising practices.
- Compliantly follow new data protection requirements.
What do all of these challenges have in common?
They’re all related to data privacy.
The businesses already taking the time to master the general principles and practices around data privacy have a massive head start in front of those that aren’t.
Data Privacy Helps You Keep Up With Changing Technology
Speaking of today’s online ecosystem, it’s evolving at an incredible pace.
In-browser privacy-enhancing technologies, such as Global Privacy Controls or Google’s Privacy Sandbox, give website visitors greater control over their personal information.
In the future, browsers will be at the center of privacy preferences management, as users will be able to manage their preferences within their browsers, sending their preference signals to websites automatically.
The businesses that adapt today to receive and recognize these preference signals will be able to provide a better online experience on their website tomorrow.
Of course, it will take time for businesses to fully adapt to all these new challenges (and by that time, I’m sure we’ll be discussing even more changes to the online environment).
But in the meantime, understanding data privacy will provide your business with a much-needed stable foundation.
What’s the Difference Between Data Privacy and Data Security?
Data privacy and data security go hand in hand, but they represent two distinct processes.
While data privacy means keeping personal information as private as possible, data security refers to how you protect the information throughout its entire lifecycle.
Data security includes preventing unauthorized access but also helps recover lost data should a cyberattack or other issue occur.
It even covers hardware, software, user devices, and other technologies.
Why Both Are Important
By default, data privacy involves an element of data security because it helps keep the information confidential and out of the hands of unsanctioned individuals.
But, not all aspects of data security are strictly about protecting the privacy of personal information. Additional complexities, like recovering lost data or verifying consumer requests, also come into play.
It’s like squares and rectangles — not all rectangles are squares, but all squares are rectangles.
Well, not all data security is about data privacy, but proper data privacy must include elements of data security.
Conversations About Data Privacy Aren’t Going Anywhere
I feel we’ll be talking about data privacy and its implications for businesses and consumers for many years to come.
And I must remind business owners, in particular, that we fall into both categories at the end of the day.
So, prioritize data privacy for your company as much as you do for yourself.
As technology continues to develop and we spend more of our lives on the internet, we can expect more data privacy and protection laws to pass and legislation that addresses AI, internet cookies, and other tracking technology.
So even if your business doesn’t fall under the jurisdiction of any data privacy laws right now, it most likely will in the future — a future that’s not as far off as you might assume.
Don’t get left behind.
Instead, ensure your business stays part of the conversation by creating proper data privacy and security protocols today.
How Can Termly Help?
No matter where you are on your data privacy journey, Termly has tools, solutions, and policy generators that can help make everything easier and more seamless.
For example, our legally-backed privacy policy generator already features information to help your business comply with laws like the EU and U.K. GDPR, the CCPA, PIPEDA, and more.
It asks you simple questions and uses those answers to create a personalized policy that you can embed directly on your website or app.
We also have a Consent Management Platform that you can configure to meet various opt-in or opt-out consent requirements in nearly 80 different regions worldwide.
For folks on a tighter budget, our policy templates are free to download and easy to complete — just replace the blank sections of the text with details about your business.
They’re an excellent option for small businesses that may not currently fall under any laws but want to improve their data privacy literacy.
Summary
Data privacy is often purely looked at through the lens of legal compliance, which is important, but it can provide much more for your business than just passive risk avoidance.
It also provides guiding concepts and requirements you can leverage to help your business build effective data management practices and brings you closer to your customers by developing trust around how you handle their data.
This enable your business to better adapt and evolve with technology and the digital space.
Data privacy is the defining factor of tomorrow’s virtual world, and we are all living in it.
