Navigating Reputational Risks: Strategies for Banks and Credit Unions

Your credit union or bank’s reputation is fundamental to its success. A strong, positive reputation encourages trust and confidence in your financial institution, driving account holder loyalty, garnering grants or other support, and fostering community partnerships.

Reputational risks in finance involve any potential negative perceptions, publicity, or events – both within and beyond your control – that could harm your bank or credit union’s reputation and, consequently, its operational and financial performance.

Here, you’ll learn about common reputational risks for finance brands, the differences between risk management and crisis management, and strategies for effectively analyzing and managing your institution’s reputational risk – an ongoing process that should become an essential, routine part of your operations.

RECOGNIZING REPUTATIONAL RISKS IN FINANCE

Several factors can jeopardize the reputation of a bank or credit union. Some of the most prevalent include cybersecurity breaches that compromise sensitive account holder data, unethical or noncompliant practices, poor customer service experiences, and unfavorable media coverage.

The spread of misinformation, misconceptions, and negative views about financial institutions, especially on social media, can also significantly impact public perception. Common examples include disparaging debates about taxpayer money being used to bail out big financial institutions on the verge of bankruptcy and harsh criticisms of some lending practices that some people see as predatory.

These views and beliefs about the financial industry as a whole could be directly damaging to your bank or credit union, particularly if negative opinions or inaccuracies are shared in response to your institution’s social media posts. Negative press, reviews, and testimonials specific to your financial institution can also have significant reputational effects, especially if they aren’t offset by a wealth of positive ones. All of this could discourage would-be account holders from choosing your institution or cause community partners to cut ties.

An abundance of positive press and engagement can help mitigate and combat reputational risks and crises. Examples of ways to amplify positive content include:

• Spotlighting glowing reviews or testimonials on your website’s homepage, social media channels, or an ad campaign
• Sharing local news stories about your institution’s charitable support, volunteer efforts, and other community involvement across all channels
• Creating a landing page and/or targeted ad campaign that highlights innovative services or products you offer
• Publicizing prestigious awards and recognitions you’ve earned, which will help buy trust and credibility
• Promoting upcoming events or celebrations that are open to the community or industry peers

All these steps can help broaden your institution’s reach and recognition and foster positive sentiment with local communities and industry leaders.

WHAT IS THE DIFFERENCE BETWEEN RISK MANAGEMENT AND CRISIS MANAGEMENT?

Risk management means identifying, assessing, and proactively addressing issues or events that could negatively impact your reputation and performance, minimizing their effects. Crisis management is responding to and recovering from unforeseen events that have already caused or threaten to cause damage to your institution’s reputation.

For instance, risk management might involve hiring an expert to analyze and upgrade your institution’s cybersecurity measures or enhancing your customer service processes. On the other hand, crisis management could include addressing a data breach caused by a cyberattack or responding immediately and transparently to a burst of negative press and social media engagement due to an employee scandal.

Though distinct, the two practices often overlap. Effective risk management can reduce the likelihood and severity of crises, diminishing the need for crisis management. By proactively addressing risks, institutions can avoid many crises altogether, making crisis management a more streamlined and less frequent necessity.

HOW TO ASSESS REPUTATIONAL RISK

1. Monitor Public Perception: To effectively manage your institution’s reputational risk, be aware of what people report they are experiencing and what they are saying about your bank or credit union. Social media listening can give you a clearer sense of the public’s opinions about your institution and its competitors. Online feedback platforms like Google, Niche, and Yelp can help you identify severe or recurrent concerns so you can promptly address them.
2. Evaluate and Prioritize Risks: Analyze identified risks, then assign each one a risk score – a measurement of the potential damage the risk could cause to your bank or credit union. Compare the risks and their scores to your financial institution’s risk tolerance, and prioritize addressing the risks that exceed it.
3. Develop Mitigation Plans: Create detailed prevention, reduction, and damage control plans to address prioritized risks. Link key risk indicators – such as customer complaint volume, engagement rates, or frequent or high-profile product or service failures – to relevant key performance indicators to better understand how reputational risks or crises affect your ability to achieve specific goals.
4. Implement Ongoing Reputation Management Processes: Regularly monitor the efficacy of your strategies and adjust as needed. This may include reassessing risk scores, evaluating the effects of mitigation and response efforts, and updating plans to accommodate changes in your organization or industry.
   

HOW TO MANAGE REPUTATIONAL RISK IN FINANCE

A bank or credit union’s reputation is deeply connected to its potential for success, so reputation management needs to be part of your overall strategy. Here are five tips for maintaining and improving public perception and your reputation:

1. Ensure Leaders Prioritize Brand Reputation: Emphasize the importance of reputational risk management to your organization’s leadership, providing relevant data to back up your statements.
2. Create and Communicate Clear Standards: Ensure every team member understands their role in upholding your institution’s reputation, values, and expectations to preserve your financial brand’s image.
3. Respond Directly to Feedback and Concerns: Engage directly with prospective and current account holders on social media and online review platforms. Use the insights gained to improve individuals’ experiences and to incorporate feedback into broader risk and advancement strategies.
4. Prepare a Response Plan: Have clear guidelines and processes in place about who will respond – and how – if your institution is exposed to a high-priority reputational risk or crisis, minimizing potential long-term damage.
5. Promote the Positives: Spotlight positive and helpful content – like uplifting testimonials and press and easy-to-read educational articles – across platforms to enhance public perception, establish or restore trust, and attract and retain loyal account holders.

Reputational risk management should be an ongoing, dynamic process that adapts to evolving landscapes and your brand’s unique risks. It’s a complex but essential aspect of financial institution marketing that requires strategic, proactive planning. By identifying, managing, and responding to internal and external reputational threats, you can help optimize your organization’s performance and drive its lasting success. Ready to develop a comprehensive reputation management strategy that elevates your brand? Connect with LIGHTSTREAM today.