The trust placed in financial services organizations by clients, investors, and stakeholders is not only a reflection of reliability but also a significant driver of business success. But, as one of the most regulated and notoriously untrusted industries, the financial services industry is among the most vulnerable to being impacted by negative digital media, driving up its vulnerability to reputational risk.
In this blog, we will define reputational risk as it pertains to the financial services industry, discuss the heightened role of trust and reputation within the industry, and offer strategies for controlling the narrative of a financial services institution in the face of a crisis.
Defining Reputational Risk for Financial Services Institutions
Reputational risk occurs when an institution’s action or lack thereof gives its stakeholders or employees a negative perception.
Reputational risk is convoluted. Political climate, environmental issues, technology innovations, criminal activity, economic volatility/inflation, account diversity, and industry regulatory changes are just a few examples of factors that often spur reputational risk or crises.
Most financial services institutions have in place some sort of reputational risk framework that intends to mitigate such risks. However, these reputational risk management (RRM) frameworks are still widely underdeveloped. Rather than executing the components of these frameworks as part of a strategic, long-term goal to prevent reputational risk from heightening at all, most RRM efforts are developed mainly in the context of minimizing losses after a crisis or scandal.
Recent bank crises plead the case for risk management preparedness. For example, the disaster with Silicon Valley Bank earlier this year illustrates how big of a slippery slope a crisis can mount if not handled strategically. Silicon Valley Bank experienced a devastating liquidity crisis, yes, but equally devastating was its public relations blustering and hesitance to confront client fear in a head-on and reassuring manner.
Heightened Role of Trust and Reputation
Nearly all crises, if not handled promptly and thoroughly, can cause a company to lose the trust of its important customers, clients, and counterparties. Financial services institutions are especially vulnerable to these risks because of the emphasis many of their marketing and business models place on public trust and customer relationships.
A financial services institution’s most important task when responding to a crisis is to avoid a cascading loss of trust and relationships, not only with its regulators but also with its depositors, borrowers, clients, and counterparties. Erosion of trust and relationships can be precipitous and quickly turn an otherwise isolated incident into an existential crisis for the organization.
And responding to crises is more multifaceted than ever. Today’s customers are so inundated with media that the communications delivered through the industry’s traditionally preferred channels of press releases and newsletters tend to get lost in the shuffle. Financial services institutions must meet customers where they are, not only with standard marketing and services but with crisis management strategies, as well.
Controlling the Narrative
Perficient is providing banks and other firms a way to use modern communications and influencing methods to maintain control of their brand narrative. Our cross-functional Banking Crisis Service Offering combines financial analysis, social media monitoring, and IT changes, including artificial intelligence offerings, that:
- Automates the orchestration of data mining, reporting, and generation of actionable insights to replace labor-intensive, manual reporting and analysis using discrete data from multiple sources.
- Uses social media and analytics to assess market sentiment and generate prescriptive insights on threats to brand reputation.
- Conducts continuous assessments of key customers for deposit outflow risks and 360° customer value to direct targeted campaigns to those customers and/or specific market segments.
- Coordinates multi-channel campaigns with personalized, targeted messaging for social media influencers, analysts, key customers, and employees.
- Enables automated and on-demand reporting to provide more timely and granular information to investors, such as deposit details, customer concentrations, liquidity immediately available vs contingent liquidity sources, and loans by collateral and CRE segment to better evaluate risk and boost institution responsiveness.
Contact Perficient’s financial services team today to learn more about how we help leading financial services institutions manage their reputational risk.
Awesome information.
Useful blog.