How Third-Party Vendors Put Your Customer Data at Risk

Your business runs on vendors. Payment processors, cloud storage, marketing tools, customer service platforms. Each one makes operations smoother, but each one also creates a doorway into your most sensitive data.

That doorway is exactly what hackers are looking for.

Thirty percent of data breaches that occurred during the year ended October 31, 2025 involved a third party, doubling from 15% the previous year, according to the Verizon 2025 Data Breach Investigations Report. When attackers can't breach your systems directly, vendors become the side entrance.

Why Vendors Are Prime Targets for Attackers

Attackers love third-party vendors because one compromised vendor can unlock dozens of companies at once. Instead of breaching 50 different systems, they breach one vendor and gain access to all 50 clients.

Here's what makes vendor systems so attractive:

• Weaker security posture compared to large enterprises they serve
• Access to sensitive customer data across multiple organizations
• Less scrutiny from security teams focused on internal threats
• Slower patching cycles leaving vulnerabilities open longer
• Limited visibility into their own supply chain risks

In the first half of 2025 alone, 79 supply chain attacks impacted 690 organizations and 78.3 million individuals. While supply chain attacks accounted for less than 5% of all data compromises, they affected nearly half of all individuals impacted by breaches.

The math is simple: attacking one vendor gets you many victims.

Real-World Examples from 2025

The threat isn't theoretical. Major companies have already learned this lesson the hard way.

In early 2025, both Co-op and Marks & Spencer suffered breaches linked to a shared third-party delivery provider. Attackers used phishing tactics on vendor employees to access contact and order data. Combined, over 6.5 million customer records were compromised.

Qantas disclosed a significant breach in July 2025 after attackers compromised a third-party customer service platform. The incident exposed personal information of 5.7 million Qantas customers, including names, contact details, and booking information.

Ascension Health revealed a third-party breach affecting 437,329 patients. The vulnerability exposed names, Social Security numbers, diagnoses, insurance information, and clinical data.

What connects these incidents? None of the breached organizations directly failed. Their vendors did. But customers don't blame the vendor, they blame the brand they trusted with their data.

How Vendor Access Creates Security Gaps

Most businesses assess only 40% of their vendors on average, mainly due to lack of resources. Two-thirds of third-party risk management programs are understaffed. Meanwhile, 41% of companies still use spreadsheets to track vendor security.

That creates dangerous blind spots.

Common ways vendor relationships expose your data:

• Excessive permissions: Vendors often get more system access than they actually need
• Poor data encryption: Not all vendors encrypt data at rest and in transit
• Insecure authentication: Weak passwords or missing multi-factor authentication
• Outdated software: Unpatched systems with known vulnerabilities
• Lack of monitoring: No one watching for suspicious vendor activity
• Vague contracts: Security requirements not clearly defined or enforced

When a breach originates from a third-party system, the average cost is $4.91 million, nearly as expensive as breaches caused by malicious insiders. Breaches involving supply chain compromise take the longest to identify and contain, averaging 267 days before discovery.

That's nine months of undetected access to your customer data.

What Regulations Say About Vendor Risk

Regulators understand the threat. Laws like India's Digital Personal Data Protection Act, GDPR, and CCPA all require companies to ensure their vendors protect customer data properly.

Getting vendor oversight wrong can trigger regulatory fines, but the bigger risk is losing customer trust. When customers share their data with your company, vendors become your responsibility.

Banking and financial institutions face especially strict oversight. Financial regulators now explicitly require firms to monitor and manage risks from third-party service providers, including cybersecurity vulnerabilities and operational resilience.

For businesses handling sensitive information, vendor risk management isn't optional, it's a compliance requirement.

How to Protect Customer Data from Vendor Risks

Strong vendor risk management starts before you even sign a contract and continues throughout the relationship.

Before onboarding a vendor:

• Review security certifications (SOC 2, ISO 27001, or similar)
• Assess data protection policies and encryption standards
• Check for previous security incidents or breaches
• Verify compliance with relevant regulations (DPDP, GDPR, CCPA)
• Define clear security requirements in the contract

During the vendor relationship:

• Limit data sharing to only what the vendor needs
• Use tokenization or pseudonymization for sensitive data where possible
• Monitor vendor access logs for unusual activity
• Conduct regular security assessments and audits
• Maintain an updated inventory of all vendors and their data access levels

Continuous monitoring matters most. Periodic assessments give you snapshots, but risks evolve daily. Tools like Redacto's VendorShield provide ongoing visibility into third-party security posture, helping you spot vulnerabilities before attackers do.

Moving Beyond Spreadsheets

Most companies know vendor risk exists. The challenge is managing it effectively across dozens or hundreds of vendor relationships.

Spreadsheets can't scale. Automated platforms discover which vendors access what data, monitor their security continuously, and alert you to emerging risks in real-time.

Redacto's Privacy Engine automatically discovers and classifies sensitive data across your systems, showing what information flows to third parties. Combined with VendorShield for third-party risk monitoring, you gain complete visibility without manual tracking.

When vendor security changes, you know immediately. When a vendor gets breached, you can act fast.

FAQs

What percentage of data breaches involve third-party vendors?

Thirty percent of data breaches in 2025 involved third-party suppliers and vendors, according to Verizon's Data Breach Investigations Report. That's double the 15% rate from the previous year, reflecting the growing importance of vendor risk management.

How much does a third-party data breach cost?

The average cost of a breach originating from a third-party vendor is $4.91 million. These breaches also take the longest to detect and contain, averaging 267 days before discovery and containment.

What types of businesses are most at risk from vendor breaches?

Banking, financial services, healthcare, and insurance companies face the highest risk because they handle sensitive customer data and rely heavily on third-party providers. However, any business sharing customer data with vendors faces potential exposure.

How can I tell if my vendors have adequate security?

Look for independent security certifications like SOC 2 Type II, ISO 27001, or industry-specific attestations. Ask about encryption practices, access controls, incident response procedures, and previous incidents. Regular security assessments and continuous monitoring provide ongoing visibility.

What should I do if my vendor gets breached?

Act immediately to assess the scope of exposure. Determine what data was accessed, which customers are affected, and what regulatory notification requirements apply. Contact the vendor for incident information, consider suspending their access, and notify affected customers per legal requirements.