In today's digital age, cybersecurity threats have become an ever-present danger for businesses of all sizes. With the rise of remote work and cloud-based systems, the potential for cyber-attacks has only increased, and franchising businesses are no exception. According to the 2022 Data Breach Investigations Report (DBIR) by Verizon, there were 5,212 confirmed data breaches in the last year, out of which approximately 98% were caused by system intrusion, social engineering, and privilege misuse.
The report highlights that cyber attackers have become more sophisticated, exploiting vulnerabilities in technology, processes, and human error (accounting for approximately 82% of all breaches). Small and medium-sized businesses are particularly vulnerable to these attacks, as they may not have the same resources or expertise to combat cyber threats as larger organizations.
Franchising businesses are especially susceptible to cyber attacks due to the complex network of franchisees, employees, and third-party providers. Each of these parties has access to sensitive information, and a breach in any one of them can have far-reaching consequences. Additionally, franchise businesses are subject to a range of legal and regulatory requirements for cybersecurity.
In this guide, we will provide a comprehensive overview of the cybersecurity threats that face franchising businesses and the best practices for preventing, detecting, and responding to these threats. We will also discuss the legal and regulatory requirements for cybersecurity in franchising and provide real-world use cases and applications to illustrate the importance of cybersecurity in a franchise environment.
Table Of Contents
Cybersecurity Threats in Franchising
Franchising and Cybersecurity: Risks and Challenges
Best Practices for Cybersecurity in Franchising
Legal and Regulatory Requirements for Cybersecurity in Franchising
Cybersecurity Responsibilities of Franchisee and Franchisor
Cybersecurity Threats in Franchising
Cybersecurity threats refer to any malicious attempt to disrupt, damage, or gain unauthorized access to a computer system, network, or electronic device. These threats can be caused by various entities such as hackers, malware, or insider threats. Cybersecurity threats can result in data breaches, financial losses, and reputational damage.
Cybersecurity threats are a constant and growing concern for all businesses, including franchising businesses. Franchising businesses operate under a unique structure that presents a complex network of franchisees, employees, and third-party providers, making them particularly susceptible to cybersecurity threats. Cybersecurity threats generally occur in 3 types:
System Intrusion: A type of cyber attack where an unauthorized user gains access to a computer system or network. This type of attack can take many forms, including exploiting vulnerabilities in software, brute-forcing passwords, or using phishing techniques to trick users into divulging login credentials. In franchising businesses, system intrusion can lead to the unauthorized access of sensitive data stored on franchisor or franchisee servers, including customer information, financial records, and intellectual property.
In the 2018 attack on the international fast-food chain Wendy's, hackers gained access to the point-of-sale systems in over 1,000 of the company's franchise locations, stealing credit card information from over 18 million customers. The attack cost the company an estimated $50 million in damages and lost sales, highlighting the importance of securing franchisor and franchisee systems against system intrusion attacks.
Social Engineering: A type of attack that targets the human element of a business, using psychological manipulation to trick individuals into divulging sensitive information or performing an action that compromises the security of a system or network. Common social engineering techniques include phishing, pretexting, baiting, and quid pro quo schemes.
In franchising businesses, social engineering attacks can be particularly effective due to the complex network of individuals involved. For example, attackers may pose as franchisees or vendors, tricking employees into giving them access to sensitive information or systems.
The 2019 attack on Checkers Drive-In Restaurants is one of those cases where attackers posing as the CEO of the company convinced an employee to transfer over $28,000 to a fraudulent account. The attack highlights the need for ongoing employee training and awareness programs to help them recognize and report social engineering attacks.
Privilege Misuse: A type of attack where an authorized user abuses their access privileges to a system or network. This can include accessing sensitive data without authorization, modifying or deleting files, or using their privileges to carry out unauthorized activities.
In franchising businesses, privilege misuse can occur when franchisees or employees with access to sensitive data use their privileges to carry out unauthorized activities, such as stealing intellectual property or tampering with financial records.
An example of privilege misuse in franchising is the 2018 data breach at the popular fitness brand, Under Armour. A rogue employee with access to sensitive customer data used their privileges to steal the information of over 150 million customers. The attack highlights the importance of monitoring and managing access privileges to prevent privilege misuse.
Common types of cybersecurity threats in franchising
- Malware and phishing attacks: Malware is malicious software designed to damage, disrupt, or gain unauthorized access to a computer system or network. Phishing involves efforts to acquire confidential data, like usernames and passwords or payment card details, by posing as a reliable party. Malware and phishing attacks can lead to data breaches and financial losses.
- Social engineering attacks: Social engineering attacks involve tricking individuals into divulging sensitive information or performing actions that can compromise the security of a system or network. Social engineering attacks can be carried out through various means such as phishing emails, phone calls, or physical visits to a business location.
- Insider threats: Insider threats refer to any malicious activity carried out by authorized users such as employees, contractors, or business partners. Insider threats can be intentional or unintentional and can result in data breaches, financial losses, and reputational damage.
- Physical security breaches: Physical security breaches refer to any unauthorized physical access to a business location or device. This can include theft of devices, unauthorized access to data centers or server rooms, or physical destruction of devices.
- Password attacks: Password attacks are designed to gain unauthorized access to systems or accounts by exploiting weak passwords or vulnerabilities in password management systems. Examples of password attacks include brute-force attacks, dictionary attacks, and credential stuffing.
- Denial-of-service (DoS) attacks: DoS attacks aim to overwhelm a target system or network with traffic, rendering it inaccessible to users. Distributed DoS (DDoS) attacks are a type of DoS attack that uses multiple compromised devices to generate traffic.
- Man-in-the-middle (MitM) attacks: MitM attacks involve intercepting communications between two parties to steal sensitive information or manipulate communication. This type of attack can occur in both wired and wireless networks.
- Advanced persistent threats (APTs): APTs are targeted attacks that involve sophisticated techniques and are carried out by highly skilled and well-funded attackers. APTs can persist for months or even years and are often aimed at stealing sensitive data or disrupting critical operations.
Franchising and Cybersecurity: Risks and Challenges
Franchising businesses are vulnerable to cybersecurity threats due to various reasons such as complex IT infrastructure, lack of standardization, and third-party providers. In this section, we will discuss the vulnerabilities of franchising businesses to cybersecurity threats and the risks and challenges of cybersecurity in franchising.
Vulnerabilities of franchising businesses to cybersecurity threats
Franchising businesses can be particularly vulnerable to cybersecurity threats due to the nature of the franchisee and franchisor relationship, complex IT infrastructure and third-party providers, and lack of standardization and control.
Franchisee and franchisor relationships: Franchisors typically provide franchisees with IT infrastructure and support, which can include hardware, software, and security protocols. However, franchisees may not have the same level of cybersecurity knowledge and expertise as the franchisor, and may not always follow the franchisor's security protocols. This can create vulnerabilities in the overall network and infrastructure of the franchise system.
Complex IT infrastructure and third-party providers: Franchise businesses can have complex IT infrastructure that is often supported by multiple third-party providers. This can include point-of-sale systems, customer relationship management software, and other business-critical applications. Any one of these third-party providers could have vulnerabilities that could be exploited by attackers, which could lead to a breach of the entire franchise system.
Lack of standardization and control: Franchise businesses are often made up of many different locations, each with its own IT infrastructure and security protocols. This lack of standardization can make it difficult for franchisors to monitor and control security across the entire franchise system and can create opportunities for attackers to exploit vulnerabilities in individual franchise locations.
Risks and challenges of cybersecurity in franchising
Franchising businesses face several risks and challenges when it comes to cybersecurity, including compliance with regulations and standards, data privacy and protection, reputation, and brand protection, and financial and legal implications.
Compliance with regulations and standards: Franchising businesses need to comply with various regulations and standards concerning cybersecurity, such as the Payment Card Industry Data Security Standard (PCI DSS) and the General Data Protection Regulation (GDPR). Failure to comply with these regulations and standards can lead to legal and financial implications, as well as reputational damage.
Data privacy and protection: Franchising businesses need to protect sensitive data such as customer information, financial data, and intellectual property. A breach of this data can lead to significant financial and reputational damage for the franchise. Franchising businesses need to implement robust data privacy and protection measures to mitigate these risks.
Reputation and brand protection: Franchising businesses rely heavily on their brand reputation to attract and retain customers. A cybersecurity incident can damage the franchise's reputation and brand, leading to a loss of customers and revenue. Franchising businesses must implement cybersecurity measures that protect their brand and reputation.
Financial and legal implications: Cybersecurity incidents can have significant financial and legal implications for franchising businesses. These may include fines, lawsuits, and the cost of remediation. Franchising businesses need to implement cybersecurity measures that mitigate the financial and legal risks associated with cybersecurity incidents.
Franchising businesses are vulnerable to cybersecurity threats due to complex IT infrastructure, third-party providers, and lack of standardization and control. Franchising businesses need to implement robust cybersecurity measures that comply with regulations and standards, protect sensitive data, and mitigate financial and legal risks.
Best Practices for Cybersecurity in Franchising
One of the most significant examples of the implementation of best practices for cybersecurity in franchising was seen in the Subway data breach. In 2017, hackers breached the point-of-sale systems of multiple Subway franchises, leading to the theft of customer credit card information. Subway's response was swift, with the company implementing new security measures, conducting an internal investigation, and providing assistance to franchisees in enhancing their cybersecurity posture.
Another example of the importance of collaboration and customization in cybersecurity can be seen in the Marriott data breach of 2018. The breach occurred due to a vulnerability in a reservation system used by Starwood Hotels, which Marriott had recently acquired. The breach affected millions of customers and resulted in significant reputational damage to the Marriott brand. Following the breach, Marriott worked closely with its franchisees to enhance their cybersecurity posture and implemented new security measures across the entire organization.
In 2020, the convenience store chain Wawa suffered a data breach that affected all of its 800+ locations. The breach, which went undetected for several months, resulted in the theft of credit card information from over 30 million customers. Wawa responded by implementing new security measures, including enhanced encryption and multi-factor authentication, and collaborating with franchisees to improve their cybersecurity posture.
Cybersecurity is a complex and evolving field, and implementing effective cybersecurity measures can be a challenging task, especially for franchising businesses. To protect their sensitive data, operations, and reputation, franchising businesses need to establish and maintain robust cybersecurity practices that cover the entire organization and its network. The following are some best practices for cybersecurity in franchising:
Cybersecurity governance and risk management: Franchising businesses need to establish a governance framework that encompasses the organization's cybersecurity strategy, policies, standards, and procedures. They need to identify and assess their cybersecurity risks and vulnerabilities and develop mitigation strategies and controls to minimize the risk of cyber threats.
Employee awareness and training: Employees, including franchisees, need to be aware of the risks of cyber threats and their role in preventing them. Franchisors should provide cybersecurity awareness and training programs to all employees to ensure they understand the importance of cybersecurity and are aware of best practices for protecting their sensitive data.
Technical measures and controls: Franchising businesses need to implement technical measures and controls, such as firewalls, intrusion detection and prevention systems, antivirus and antimalware software, access control mechanisms, encryption, and network segmentation. These technical measures and controls should be regularly updated and tested to ensure their effectiveness.
Incident response and business continuity planning: Franchising businesses need to establish incident response and business continuity plans to ensure they can quickly respond to and recover from cyber incidents. These plans should include roles and responsibilities, communication protocols, backup and recovery strategies, and testing and updating procedures.
Implementation of Cybersecurity Best Practices in Franchising Businesses
Implementing cybersecurity best practices in franchising businesses can be challenging due to the complexity of the franchisee-franchisor relationship and the diverse nature of franchise operations. However, implementing these practices is critical for ensuring the protection of the franchisee and franchisor networks, data, and reputation. The following are some ways franchising businesses can implement cybersecurity best practices:
Collaboration between franchisee and franchisor: Franchisees and franchisors need to collaborate and work together to establish and implement cybersecurity policies and procedures that cover the entire network. Franchisors should provide guidance and support to franchisees in implementing technical measures and controls, employee training, incident response, and business continuity planning.
Customization and adaptation of cybersecurity policies and procedures: Franchising businesses need to customize their cybersecurity policies and procedures to meet the specific needs and requirements of their franchise network. They should take into account the diversity of their franchise operations, the nature of their data, and the regulatory environment they operate in.
Regular audits and assessments: Franchising businesses need to regularly audit and assess their cybersecurity practices to identify vulnerabilities and areas for improvement. These audits should cover both the franchisor and franchisee networks and should be conducted by qualified cybersecurity professionals.
Continuous improvement and adaptation to changing threats: Cyber threats are constantly evolving, and franchising businesses need to continuously improve and adapt their cybersecurity practices to mitigate the risk of new threats. They should monitor and stay up-to-date with cybersecurity trends, emerging threats, and regulatory changes and adjust their policies and procedures accordingly.
Implementing effective cybersecurity practices is critical for protecting franchising businesses from cyber threats and their impact on operations, reputation, and financial stability. By establishing governance frameworks, training employees, implementing technical controls, and planning for incident response and business continuity, franchising businesses can minimize their cybersecurity risks and establish a secure and resilient network.
Legal and Regulatory Requirements for Cybersecurity in Franchising
In today's digital age, businesses face increasing legal and regulatory requirements to ensure cybersecurity and protect sensitive information from unauthorized access or disclosure. Franchising businesses are no exception, as they often handle large volumes of customer data and rely on complex IT systems to manage their operations. Failure to comply with cybersecurity regulations can result in severe consequences, including financial penalties, legal action, and damage to a business's reputation.
Overview of Legal and regulatory frameworks
Numerous legal and regulatory frameworks for cybersecurity apply to franchising businesses, including data protection and privacy laws, industry-specific regulations and standards, and general cybersecurity laws and regulations. The following are some of the most notable frameworks:
- Data Protection and Privacy Laws: These laws regulate the collection, use, storage, and transfer of personal information, including customers' and employees' data. Some of the most well-known data protection and privacy laws include the European Union's General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Health Insurance Portability and Accountability Act (HIPAA).
- Industry-Specific Regulations and Standards: Some industries, such as finance, healthcare, and telecommunications, have their regulations and standards for cybersecurity that franchising businesses must comply with. For example, the Payment Card Industry Data Security Standard (PCI DSS) regulates how businesses must handle credit card information.
- General Cybersecurity Laws and Regulations: Many countries and jurisdictions have their own laws and regulations related to cybersecurity that businesses must follow. For instance, in the United States, the Cybersecurity Information Sharing Act (CISA) and the Federal Information Security Modernization Act (FISMA) are two of the most significant cybersecurity laws.
Consequences of non-compliance with cybersecurity regulations
Non-compliance with cybersecurity regulations can result in severe consequences for franchising businesses. Some of the most significant consequences include:
- Fines and Penalties: Governments and regulatory bodies can impose substantial fines and penalties on businesses that fail to comply with cybersecurity regulations. For example, under the GDPR, businesses can be fined up to €20 million or 4% of their global annual revenue, whichever is greater, for data protection breaches.
- Legal and Reputational Damages: Failure to comply with cybersecurity regulations can also result in legal action, including class-action lawsuits from affected customers or employees. Moreover, non-compliance can damage a business's reputation, leading to a loss of trust and potential revenue.
- Business Disruptions and Losses: A cybersecurity incident can cause significant disruptions to a franchising business's operations, resulting in lost revenue and productivity. Moreover, it can lead to the loss of critical business data, intellectual property, and trade secrets.
Non-compliance with these rules may lead to serious ramifications, such as monetary fines, legal proceedings, and harm to one's reputation. Therefore, franchising businesses need to establish a robust cybersecurity program that includes regular risk assessments, employee training, and compliance monitoring.
Cybersecurity Responsibilities of Franchisee and Franchisor
Cybersecurity is a critical aspect of franchising, with the increasing frequency and severity of cyber threats posing significant risks to both franchisees and franchisors. To effectively combat these threats, both parties need to understand their cybersecurity responsibilities and work collaboratively to mitigate risks.
In recent years, numerous high-profile incidents have highlighted the importance of cybersecurity in franchising, including the 2016 attack on Wendy's point-of-sale systems, the 2017 data breach at DocuSign, and the 2018 ransomware attack on Pizza Hut's online ordering system. These incidents demonstrate the severe financial, legal, and reputational consequences that can result from inadequate cybersecurity measures. As such, franchisors and franchisees must take proactive steps to safeguard their businesses against cyber threats.
Let us take a deep dive into understanding the cybersecurity responsibilities of both franchisors and franchisees, including their roles and responsibilities, communication, collaboration, and sharing of information and resources. We will also look at the implementation of cybersecurity responsibilities in the franchising business
Cybersecurity responsibilities of franchisee and franchisor:
Identification of roles and responsibilities:
The franchisor and franchisee have different responsibilities when it comes to cybersecurity. The franchisor's role is to establish and maintain cybersecurity policies and standards, while the franchisee is responsible for implementing these policies and ensuring that their employees follow them. Both parties need to agree on the specific roles and responsibilities in their franchise agreement.
Communication and collaboration:
Effective communication and collaboration between the franchisor and franchisee are critical for a successful cybersecurity program. The franchisor should regularly communicate changes in cybersecurity policies, new threats, and best practices to franchisees. The franchisee should promptly report any security incidents or concerns to the franchisor.
Sharing of information and resources:
The sharing of information and resources is vital to the success of the cybersecurity program. The franchisor should provide training and resources to franchisees to help them implement security measures. Franchisees should share information about security incidents and best practices with other franchisees to help prevent similar incidents from occurring.
Implementation of cybersecurity responsibilities
Franchise agreement and compliance requirements:
The franchise agreement should include cybersecurity requirements, such as minimum security standards, employee training, and incident reporting procedures. Compliance with these requirements should be regularly audited.
Training and education of franchisees and employees:
The franchisor should provide comprehensive training and education programs to franchisees and their employees. These programs should cover cybersecurity policies and best practices, including phishing prevention, password management, and the safe use of social media.
Monitoring and reporting of cybersecurity incidents:
Franchisees should implement monitoring tools to detect cybersecurity incidents and report them to the franchisor promptly. The franchisor should have an incident response plan in place to mitigate the impact of security incidents.
Continuous improvement and adaptation to changing threats:
The threat landscape is constantly evolving, and franchise businesses need to adapt to keep up with new threats. The franchisor should regularly review and update cybersecurity policies, standards, and training programs. Franchisees should continuously monitor and assess their security measures to identify and address any vulnerabilities.
Bottomline
This guide has outlined the various cybersecurity threats that franchising businesses face and the risks and challenges that come with them. We have discussed the best practices and legal requirements for cybersecurity in franchising and the responsibilities of both the franchisee and franchisor. The importance of cybersecurity in franchising cannot be overstated, as it not only impacts the financial and operational aspects of the business but also the reputation and brand image.
It is crucial for franchise businesses to continuously improve and adapt to the ever-evolving threat landscape. As a leading software provider for franchising businesses, Delightree encourages all franchise businesses to take cybersecurity seriously and implement the best practices and legal requirements discussed in this guide. Let us work together to protect our businesses and the sensitive information of our customers.
