Every time someone pastes client information into ChatGPT or connects an AI-powered accounting tool to your bank accounts, your business data enters systems you may not fully control. Your employees are already using these tools (whether you've approved them or not), because the efficiency gains are hard to ignore when you're staring down a deadline.
Employees at Samsung Electronics learned the cost of this convenience in April 2023 when they uploaded proprietary source code, confidential meeting notes, and other sensitive internal information to ChatGPT without realizing their conversations could become part of the AI's training set. The incident triggered a company-wide ban on generative AI tools.
Your business likely relies on AI tools for the same reasons Samsung employees did: they save hours of work. The question isn't whether to use them, but how to avoid becoming the next cautionary tale. Here's what creates the risk and what you can do about it.
How AI Exposes Your Business Data
You clicked "I agree" on terms of service you never read (who does?), and now your client data lives on servers you can't locate, controlled by companies you've never vetted. Most business owners have no idea which AI tools their employees use, what data those tools collect, or who else can access it. Data exposure through AI tools happens through three primary channels, each with different risk profiles and mitigation strategies.
Undisclosed Data Collection and Third-Party Sharing
Undisclosed data collection and third-party sharing happen when AI tools gather more information than you expect or transmit data to vendors you never vetted. A chatbot handling customer inquiries might log credit card details and personal information without clear disclosure.
FTC guidance makes clear that your business remains legally responsible for vendor privacy practices, even if you had no idea what they were doing.
Training Data Usage
Training data usage presents another concern. Free versions of ChatGPT and similar tools often use your inputs to improve their models by default. Business-tier versions explicitly exclude customer data from training (OpenAI's documentation confirms this), making them the safer choice for sensitive information.
AI-Enhanced Cyberattacks
AI-enhanced cyberattacks specifically target small businesses with limited security resources. Attackers use AI to scrape employee information from LinkedIn and social media, then craft phishing emails that mimic trusted colleagues with unsettling precision.
Deepfake voice technology enables criminals to impersonate executives requesting urgent wire transfers. Small businesses face disproportionate risk because they typically lack dedicated IT security staff to detect these attacks before damage occurs.
Why Free AI Tools Create More Risk Than Paid Versions
Free is expensive when it comes to AI security. Every time an employee uses a free AI tool for business tasks, your company data enters systems with minimal security protections.
What free AI tools lack:
Enterprise security features such as single sign-on, audit logs, and data residency controls
Short conversation retention periods
Business-grade contractual protections if something goes wrong (and "sorry" doesn't recover leaked client data)
Business-tier versions like ChatGPT Team, ChatGPT Enterprise, and Microsoft 365 Copilot provide Data Processing Agreements with specific security commitments and defined deletion procedures.
For businesses handling financial data, the calculation is straightforward: business-tier AI services costing $25-30 per user monthly provide explicit data protections and compliance certifications. IBM's 2025 Cost of a Data Breach Report found that breaches involving shadow AI (unapproved AI tools) added an average of $670,000 to total breach costs among organizations surveyed. Suddenly that monthly subscription looks like a bargain.
Your Legal Exposure When AI Tools Mishandle Data
AI data privacy risks come with legal consequences that apply regardless of whether you knew your employees were using these tools. "I didn't know" isn't a defense regulators accept. Reading about California's CCPA or Virginia's VCDPA can make any business owner assume they need lawyers and expensive compliance programs, but small businesses are often exempt from state-level requirements based on revenue or consumer thresholds.
The exemptions have limits. Financial services businesses must comply with GLBA regardless of size, setting up privacy notices, opt-out rights, and safeguards for customer account information.
More critically, FTC consumer protection standards apply to every business using AI regardless of size. The Federal Trade Commission's AI guidance requires:
Maintaining transparency about AI's role in your operations
Setting up reasonable security measures for AI systems
Preventing deceptive AI-generated content
When an AI tool exposes customer data, your business bears the legal responsibility for that exposure.
Six Protection Steps That Cost Nothing
You don't need a dedicated security team or expensive software to protect your business data when using AI tools. These six steps can be implemented immediately at no cost (besides the time you'll wish you'd spent earlier).
Step 1: Establish a Written AI Data Policy
Without clear guidelines, employees make their own judgments about what data is safe to share with AI tools. Those judgments are often wrong. Establish a written policy prohibiting sensitive data entry into AI tools, post it near workstations, include it in employee handbooks, and explain why it matters.
Define sensitive data specifically for your business: customer names combined with contact information, credit card numbers, employee personal data, proprietary formulas or pricing strategies, and confidential financial information. Vague policies produce vague compliance.
Step 2: Enable Built-In Security Features
AI tools often include security settings that remain disabled by default, leaving your data more exposed than necessary. Enable security features already available in your current AI tools. Two-factor authentication significantly reduces the risk of unauthorized access when passwords are compromised, but it is not foolproof and some attack methods can still bypass certain forms of 2FA.
For business-tier AI tools, explicitly disable data usage for model training through settings menus. Review team member permissions quarterly and remove access for departed employees immediately (not "when you get around to it").
Step 3: Document Your AI Tool Inventory
When a data breach occurs, the first question is always "what systems had access to the compromised data?" This question becomes difficult to answer without proper documentation of AI tools in use. Document every AI tool your business uses in a simple spreadsheet: tool name, vendor, data categories processed, user access list, and a link to the current privacy policy.
This inventory becomes essential during breach response and helps identify unauthorized tools employees may have adopted. Industry surveys show significant rates of data leakage through generative AI tools, with estimates ranging from 44% to 68% of organizations depending on the study, often involving unauthorized employee use of public AI platforms.
Step 4: Ask the Right Vendor Questions
Vendors who deflect basic security questions signal that your data protection is not their priority. Ask four questions before adopting any new AI vendor:
Where is our data stored and processed?
Do you use our data to train your AI models?
How long do you retain our data, and how is it deleted?
Who has access to our data within your organization?
Vague answers or refusal to discuss these topics should disqualify vendors from consideration. If they won't tell you where your data goes, assume the answer is "everywhere."
Step 5: Train Your Employees
Employees who understand why data protection matters follow policies more consistently than those who simply receive a list of rules. Set up employee training covering the sensitive data categories defined in your AI policy, how to recognize AI-enhanced phishing attempts, and password security best practices including password managers. Initial training requires 1-2 hours per employee, followed by 30-minute monthly refreshers to address evolving threats.
Step 6: Create an Approved Tools List
Employees searching for productivity shortcuts will find AI tools whether you provide them or not. The question is whether those tools meet your security standards. Create an approved tools list naming specific AI services permitted for business purposes, requiring written approval for anything not on the list. The SBA's AI guide recommends that all AI-generated content receive human review before use in customer communications or business decisions.
Vetting AI Vendors Before Commitment
AI vendors may make bold claims about security on their marketing pages, but their actual data practices hide in privacy policies that change without notice. By the time you discover a vendor shares information with undisclosed third parties, your sensitive business information is already exposed.
Several red flags should immediately disqualify AI tools from consideration. Vague or missing privacy policies signal fundamental privacy immaturity. Automatic consent to data training without explicit opt-in violates FTC privacy principles. For established vendors, missing SOC 2 Type II or ISO 27001 certifications suggests they haven't invested in security infrastructure worth trusting with your data.
Contract negotiations matter even for small businesses. Negotiate clauses covering:
Data ownership: all submitted data remains your exclusive property
Deletion requirements: permanent removal within 30 days of termination with written certification
Breach notification: disclosure within 24 hours
Audit rights: the ability to verify vendor compliance with security commitments
Indemnification: financial protection if the vendor causes a breach or fails to comply
Protect Your Financial Data with Clear Visibility
Financial data represents your highest-stakes AI privacy risk. Unlike a leaked marketing draft (embarrassing, but survivable), exposed financial records can enable fraud, identity theft, and direct monetary loss. AI tools that connect to accounting software or process invoices touch bank account numbers, payment details, and client financial information: exactly the data criminals target most aggressively.
Protecting this data starts with knowing exactly where it lives and who can access it. The most effective immediate action is establishing a "no sensitive financial data in AI tools" policy, combined with ensuring AI-powered financial platforms meet the certification standards outlined above.
Relay1 helps businesses maintain this separation by providing multiple checking accounts to organize operational funds, team cards with built-in spending controls, and real-time visibility into every transaction.
These features create the financial data boundaries that protect against AI-related exposure while giving you complete oversight of who accesses what.
Open a Relay account1 to start organizing your business finances with built-in visibility and spending controls.
1Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
