AI Chatbot Privacy Concerns: Risks, Data Collection, and Compliance For 2025

Artificial intelligence is changing how businesses connect with customers. From quick replies to product suggestions, AI chatbots are now part of everyday online interactions. As their use grows, AI chatbot privacy concerns are also increasing. Many users are now asking how much data these bots collect and whether it is truly safe, especially as businesses begin adopting Data Minimization and AI chatbot data retention policies.

As more companies rely on AI for customer communication, the risk isn’t just technical; it’s legal, reputational, and financial. This article breaks down the most trusted AI chatbot privacy concerns, the data behind them, real regulatory cases, and what business owners should do before deploying chatbots, particularly under emerging AI Governance and AI Risk Management standards through stronger Consent Management and Transparency and Explainability.

E-commerce is evolving fast with AI-powered chats, but so are privacy risks. Knowing what your chatbot collects and how it uses that data can protect both your brand and your customers.

As an e-commerce owner, you need to stay aware of how your chatbots handle customer data and the growing risks tied to AI-driven conversations.

• Customers are sharing sensitive data with chatbots, often without knowing it.

• Businesses are legally responsible for what their chatbots collect.

• Governments are adding stricter AI and data privacy regulations.

• User trust strongly impacts brand loyalty and spending

For e-commerce, fintech, travel, healthcare, and service companies, ignoring these issues isn’t an option. Understanding both the benefits of chatbots and their risks and disadvantages is crucial. Let’s break down what the data says.

A major misunderstanding is that chatbots only store messages. In reality, many collect device identifiers, browsing activity, contact information, payment data, and behavioral tracking. This makes LLM data training privacy and chatbot data anonymization essential.

Key Statistics

A Surfshark analysis comparing ChatGPT, Google Gemini, Copilot, Meta AI, and 12 other leading apps found:

• Many AI chatbots collect more personal data than social media apps

• Several collect precise location, advertising IDs, and usage tracking

An analysis of AI input data found 27.4% of all content fed into chatbots contained sensitive information, including passwords, addresses, and financial details. That’s a 156% increase year-over-year.

Deloitte reported that 91% of enterprises using AI systems share customer data with third parties, increasing the risk of leaks and loss of control.

Many businesses assume chatbots delete or mask conversations, but most LLM-powered bots store chat history to improve their model training. This means customer messages can enter the model’s training data if businesses don’t enable privacy configurations, especially when using generative AI tools for automation.

What This Means for Business Owners

If your chatbot collects personal data, you are responsible under GDPR, CCPA, PDPA, and other global privacy laws. Even if a vendor built the chatbot, your business is accountable for data compliance and must adopt Zero-Trust Security and a Secure AI Framework. Recent actions like the third-party AI chatbots ban in certain regions highlight the growing regulatory scrutiny.

Customers rarely read privacy policies. When interacting with an AI chat, they share more than they realize. Many users don’t realize chatbot interactions are stored, analyzed, and sometimes shared with third parties, depending on privacy settings.

Key Statistics

In a global consumer survey, 81% believe companies using AI services collect more data than needed, and that this data may be misused.

A 2024 study found that only 27% of users understood how chatbot providers handled their user data, and 76% were unaware that AI chatbots stored and analyzed their conversations.

When asked how sensitive they consider conversations with chatbots:

• 82% said sensitive or highly sensitive

• 21% admitted to sharing financial or medical information

Why This Matters

If customers unknowingly share sensitive information through a chatbot that is not secure, the business can be held responsible, even if the user volunteered it or the chatbot was AI-trained on unverified data sources.

AI chatbots integrated into websites often introduce hidden security vulnerabilities that many businesses overlook. Studies show that poorly configured or third-party chatbot scripts can leak sensitive user information, expose tracking data, and violate privacy regulations. Understanding these risks is essential for preventing data breaches and maintaining customer trust.

AI chatbots don’t just collect data; many unintentionally expose it.

A large-scale scientific analysis of 1,000,000+ websites found:

• 1.59% used vulnerable chatbot implementations

• 68.92% of cookies loaded in chatbot iFrames were used for advertising & tracking

This creates the possibility of a data leak, identity exposure, or data in AI systems being shared further than intended.

Another study found that several chatbots embedded on e-commerce and banking websites were leaking:

• Email addresses

• Location data

• Browsing activity

• Session tokens

Even when businesses try to stay compliant, third-party scripts and tracking cookies often break AI policies and privacy rules without the owner realizing it.

Governments are getting much stricter about how businesses use AI chatbots, and the legal stakes are higher than ever. If your chatbot mishandles data or skips proper consent, you could face serious fines or compliance issues. Understanding these new regulations helps you stay protected and avoid costly penalties. AI privacy compliance is no longer “optional.”

• In May 2025, Italian regulators issued a €5M fine to the developer of an AI companion chatbot for privacy violations and improper data collection practices.

• The EU AI Act and Digital Services Act now classify some chatbots as “high-risk systems” requiring transparency, consent, and data protection.

• The U.S. Federal Trade Commission warned in 2024 that businesses deploying AI tools are liable for unfair data collection and deceptive privacy practices.

Why This Matters for Business Owners

If your chatbot stores or shares customer data without consent, you can be fined even if the AI vendor made the mistake.

Chatbots help businesses scale support, reduce staff workload, recover carts, and improve customer experience. But every use case has hidden privacy challenges.

Common Business Chatbot Uses

Study: How often chatbots collect sensitive data

Thunderbit analysis found:

• 27.4% of messages contain sensitive data

• Financial and health-related details were the most common

Study: Generative AI chatbot risks

Balbix cybersecurity research found generative AI chatbots:

• Can be manipulated into revealing stored data

• They are vulnerable to prompt injection attacks

This is a major AI risk associated with modern AI, especially when businesses are using generative AI without proper guardrails. Large platforms like Amazon's generative AI shopping assistant face intense scrutiny over data practices.

Example: Employee data leakage

A Samsung incident in 2023 revealed that engineers accidentally leaked source code by pasting it into ChatGPT. This shows how easily employees can expose internal data, especially with the use of Shadow AI and BYO-AI, where employees rely on OpenAI systems or Microsoft Copilot without approval from security teams.

When your chatbot mishandles data, the biggest loss isn’t the fine; it’s customer trust. People won’t buy from brands they feel are careless with their information. Even one privacy mistake can undo years of credibility and push customers to competitors.

Privacy breaches do more than trigger fines; they damage reputation.

Cisco’s 2024 Data Privacy Benchmark Report found:

• 95% of customers will not buy from companies they cannot trust with data

• 65% of consumers have abandoned purchases over privacy concerns

PwC reports 87% of users will switch brands if they feel data is handled irresponsibly.

A chatbot that mishandles client data, user inputs, or business information can undo years of brand credibility in a single incident.

If you use chatbots in your business, you need the right safeguards to keep customer data protected. A clear checklist helps you stay compliant, avoid unnecessary data collection, and make sure your chatbot is secure. By following these steps, you can use AI confidently without putting your business at risk.

Here are practical recommendations aligned with global privacy regulations and best practices.

Ask your chatbot provider

• Where is my customer data stored?

• Is conversation history encrypted?

• Do you delete user logs?

• Does the chatbot require consent before chatbot responses are stored?

For website chatbots

• Add a privacy disclosure and cookie banner

• Avoid storing chat logs if not required.

• Disable third-party tracking cookies

For messaging bots (WhatsApp, Messenger, Viber)

• Make sure customer consent is recorded

• Don’t collect data you don’t need

Internally

• Train employees on what should NOT be shared with AI tools

• Restrict access to customer data.

• Use anonymization when possible.

• Do not share it with third parties beyond what’s legally allowed

AI chatbots are growing fast, and with that growth comes tighter regulations and new privacy challenges. As chatbots handle more data and make more decisions, businesses will need stronger security and clearer consent practices. Staying ahead of these changes will help you stay compliant and maintain customer trust.

Analysts predict that chatbot adoption will continue rising, and regulators will follow closely.

Industry Forecasts

Chatbot industry forecast:

• Value reached USD $7.76 billion in 2024

• Expected to reach $27.29 billion by 2030

• CAGR: 23.3%

Generative AI chatbot market:

• Expected to grow from $9.90B in 2025 to $65.94 in 2032

• CAGR: 31.1%

The chatbot market size continues to expand rapidly, bringing both opportunities and challenges. Businesses implementing 24/7 customer support must balance automation with privacy protection. As custom AI solutions and AI-powered enterprise tools expand, they will make more decisions, store more data, and create new privacy challenges.

2026+ Business Predictions

• Expect stricter laws requiring explicit consent for AI interactions.

• Privacy-first chatbots will become a selling point.

• Businesses using transparent AI will gain customer trust.

• Poorly-designed chatbots will become compliance liabilities.

• Companies will need stronger AI model security, encryption, and data security measures.

AI adoption is accelerating. AI chatbots improve customer experience, boost sales, and automate workflows, but without proper privacy controls, they expose businesses to fines, data leakage, and loss of trust. The smartest brands are not abandoning AI; they are adopting privacy-preserving AI.

If you plan to use chatbots, build privacy into the strategy from day one:

• Minimize data collection

• Be transparent with customers.

• Choose vendors with strong security.

• Follow global privacy laws.

• Treat chat logs like personal data.

When you're considering free AI chat tools, privacy must be a core requirement. The businesses that succeed with AI will be the ones customers trust, not just the ones with the best technology.