Reputation Risk in E-Banking

This is the current and prospective risk to earnings and capital arising from negative public opinion. A bank’s reputation can be damaged by Internet banking services that are poorly executed (e.g., limited availability, buggy software, poor response). Customers are less forgiving of any problems and thus there are more stringent performance expectations from the Internet channel. Hypertext links could link a bank’s site to other sites and may reflect an implicit endorsement of the other sites.

Risk of damage to the bank’s reputation goes along with the other risks. It can arise, for example, from operational risk even if customers suffer no actual damage. If a hacker successfully breaks into a bank’s website and makes alterations, the bank concerned can suffer substantial damage to its reputation although customers’ balances are safe and the hacker has not obtained any financial benefit. This does not only affect the individual bank concerned but may also undermine confidence in the security of e-banking more generally and therefore slow down development in this area.

Systems breakdown, even if only temporary, is another example of how banks may be affected by bad publicity. Given the fact that the element of trust is so fundamental to banks’ business, banks will find it increasing important to adopt measures to manage reputational risk and incorporate public relations strategies into their overall risk management framework.

Some of the ways in which e-banking can influence an institution’s reputation include the following:

  1. Loss of trust due to unauthorized activity on customer accounts.
  2. Disclosure or theft of confidential customer information to unauthorised parties (e.g., hackers).
  3. Failure to provide reliable service due to the frequency or duration of service disruptions.
  4. Customer complaints about the difficulty in using e-banking services and the inability of the institution’s help desk to resolve problems.
  5. Confusion between services provided by the financial institution and services provided by other businesses linked from the website.

Bookmark the permalink.