How Do I Reduce Reputational Risk In Banking?

The modern consumer has many choices when it comes to fulfilling their banking needs. 

With this in mind, how can any financial institution stand out from the competition?

Brick-and-mortar banks and credit unions, online-only banks, and other financial firms shouldn't just "bank" on the fact that they are geographically convenient or offer the latest technology for their potential client base. 

While appealing, these factors may be insufficient to attract and retain great customers.

In this article, we highlight why an institution’s reputation matters above all else, and how to manage reputational risk to reduce the likelihood of costly "dings" to your brand. 

What Is Reputational Risk? 

Reputational risk is the potential that any business could fail to meet the expectations of its stakeholders and customers such that people form a negative view of the organization. 

Some examples that factor into reputational risk include:

• Direct actions taken by an organization, such as failing to comply with regulatory requirements or publicly known legal activities
• Actions taken by anyone representing your business, such as a C-suite employee’s unethical activities
• Actions by partners or suppliers, such as malfunctioning software that results in downtime for your app or website
• External factors, such as negative reviews or unfavorable social media posts that are publicly available

The Impact of Reputational Risk in Banking

Financial institutions have been viewed relatively favorably over the last several years. 

More than 70 percent of Americans said their financial institutions did right by them throughout the COVID-19 pandemic, according to DepositAccounts. 

Accenture has found that customers generally trust their institutions’ ability to protect their data and process their transactions.

However, Accenture also points out that customers don’t necessarily feel that banks have their long-term financial well-being in mind. 

Factors that may impact the level of consumer trust in banks include: 

1. The degree of alignment between customer expectations and bank performance — Does the institution deliver?
2. The quality of customer service — Does the institution provide an exceptional experience?
3. Whether there is a history of regulatory compliance issues or cybersecurity breaches — Has the institution made errors in the past, and if so, how have they been rectified? 
4. Widespread economic challenges — How did the bank handle, for example, the bailouts of 2008 or the COVID-19 pandemic?

Not all of these factors are within your institution's direct influence—but all have potential impact. 

Low trust and reputational damage drives new clientele away and increases customer turnover. 

In severe cases, reputational damage caused by security breaches are often associated with direct costs like hefty fines.

Clearly, genuinely caring about your brand recognition and public-facing image matters—especially now at such an uncertain time in our country's economy.

3 Factors To Help Banks Mitigate Reputational Risk

Here are three things to focus on that will help your great institution work with great people.

1. Double Down on Your Company Mission and Values

Be clear about your institution's mission and values. 

Everyone in your company should be aware of and willing to uphold these ideals. 

Doing so can:

• Improve cohesion and ensure everyone works together for a common goal
• Improve workplace experience and morale, helping you attract and retain great talent
• Enhance customer service (since customers get to work with staff members who are in alignment and offer a consistent experience)
• Improve shareholder trust 
• You guessed it—boost brand reputation!

2. Focus on Big AND Small Business

Build trust by offering technologies that make it easy for clients to feel more control over their finances. 

These technologies should be easily streamlined and intuitively scalable in order to work for large businesses, small businesses, and individual consumers. 

Consulting with IT professionals can be valuable here! 

3. Use High-Quality Cybersecurity Services

Almost nothing is more impactful when it comes to reputation risk in banking than a cybersecurity breach—especially considering data in the financial sector are highly sought after and breaches are expensive to remediate. 

Besides tarnishing your institution's reputation, a breach can threaten the safety and solvency of your clients and shareholders.

That's why it's imperative to be able to identify and correct your vulnerabilities, prevent cyber attacks, create a workplace culture of digital safety, and quickly course-correct if and when the worst happens. 

To this end, having a knowledgeable and passionate IT and cybersecurity team in your corner—even on a consulting basis—can be invaluable to your company's long-term success, as well to the privacy and dignity of your customers.

Is Your Financial Institution Vulnerable to Reputation Risk? 

Integrity specializes in managing risk for financial institutions. We have extensive experience working with auditors from many firms, as well as examiners from the OCC and FDIC. We also follow guidelines outlined in your financial institution’s due diligence process. To learn more about managing risk, please download our complimentary GLBA Compliance Checklist!