Reputation is one of the most valuable and fragile assets that a bank can have, making bank reputation risk management an extremely important process for institutions.
After all, reputation is the key to building public and consumer trust. A great reputation can set a bank apart from its competitors. Negative reputation, meanwhile, can drive away potential clients and increase customer churn.
- In a 2014 Ernst & Young survey, respondents said reputation was a “very important” factor in deciding whether or not to trust a financial services provider.
- In 2012, Edelman Insights found that financial services and banking was the industry consumers trusted the least — even less than they did the media sector.
- A 2017 global risk management survey found that damage to brand and reputation is ranked as the top risk management concern.
- While the fallout from the big banking scandals and corporate collapses of previous years has since slowly faded away, a recent FIS report indicates that 75 percent of consumers agree there is still a gap between their expectations and bank performance across a range of factors essential to creating trust. “The trust factor continues to be a concern for consumers,” the report reads, highlighting the need “to reset the foundation for consumer relationships.”
To state simply: reputation is a foundational component of a bank’s ability to inspire trust.
This leads us to the question: what is bank reputation risk management?
Let’s start by defining what reputation or reputational risk is. Bank reputational risk is the risk of loss of reputation. Unlike other risks that banks have to manage — credit, market, operational, liquidity, etc. — reputational risk is intangible and hard to measure.
Reputational risk can cause damage to a bank’s brand and reputation. Its impact is very real. According to a Finacle report, this type of risk is “felt in no uncertain terms as negative publicity, litigation, loss of revenue, clients, partners and key employees, decline in share price, and difficulty in recruiting talent.”
Reputational risk management in banking, therefore, can be defined as the forecasting and evaluation of reputation risks, together with the identification of procedures to avoid or minimize their impact.
This process or practice helps banks shape public perception of its products, services, and brand in ways that foster public and consumer trust.
Reputational Risk Management in Banking: Best Practices
Here are some ways you can help prevent and mitigate banking reputation risk.
Demonstrate business integrity
“The glue that holds all relationships together,” wrote best-selling business author Brian Tracy, “is trust, and trust is based on integrity.”
This holds especially true in reputational risk management in banking. Customers won’t feel comfortable doing business with you if they feel like you’re not looking out for their best interests. And if they’re not comfortable doing business with you, your reputation suffers.
Customers also won’t feel inclined to trust your bank if your business integrity — your ability to do the right thing — is in question. There’s a reason why, in the aftermath of so many scandals, banking became the least trusted industry in 2012.
Sure, it’s nice to have corporate social responsibility (CSR) programs, green supply chains, charity campaigns, and similar initiatives that you’ll find in your PR firm’s strategic brief.
But focus on ethics, too. Ethical lapses are another major source of reputation risk. To avoid these lapses, set high standards for the way you do business and have clear business practices and policies.
Manage online reviews, social media, and customer feedback
Consumers today rely heavily on social media and online reviews — not only to choose where to have lunch or which hotel to check into, but also to make bigger decisions, like where to get healthcare, or who has the best auto service coverage, or which banks are trustworthy.
That’s why it’s so important that banks are able to manage and monitor social media, online reviews, and other digital channels where people are leaving feedback or talking about their brand.
Whether it’s in the form of a Yelp review, an aggregate star rating on Credit Karma or Lending Tree, or a candid comment on Facebook or Google, customer feedback is an important trust factor that can shape consumption behavior and impact reputational risk.
Foster a happy and productive workplace
Sometimes, a disgruntled workforce ends up being a major source of bank reputation risk. So keep your employees happy.
Make sure that all employees, from the C-suite to the frontline, are treated fairly. Be open to and properly manage employee feedback. Build a people-first culture. Reward great employees for their hard work. Refine your people practices and make your company values truly operational.
Not only does a happy workforce contribute to productivity; it also boosts your reputation as a good company.
Protect against data breaches
Bank customers trust you with their data. This includes some of the most sensitive personal information and financial data, like social security numbers, passwords, logins, PIN numbers, and bank account numbers.
Be proactive in safeguarding your customer and employee information. It’s an essential step to protecting your bank’s reputation and financial health.
A data breach will damage your reputation and would cost your bank a draining amount of money. If this happens, whether the breach is your fault or not, be upfront about it. Show accountability, have plans in place for restoring the safety of your clients’ information, and communicate to all stakeholders your plan of action for improving cyber protection policies and procedures.
Become more customer-focused
It’s not enough that you have a great mix of products and services. To mitigate reputational risk in banking, you must deliver consistently excellent customer experiences, too.
Grow your customer relationships beyond providing transactional convenience and focus instead on the customer experience. Build customer confidence with efficient service, flexible and customized products, and technologically advanced banking channels. Make next-level service and support an investment priority. And engage with customers in ways that help them achieve a better understanding of how your products and services can meet their goals and expectations.
The key to reputational risk management in banking is to conduct close and consistent monitoring. Find ways to measure and anticipate the impact of reputation risk and be proactive in managing high reputational risk situations.