In customer service, our language profoundly influences how customers perceive our overall service quality. Reputational risk management, stemming from operational risk management, is crucial across all service-oriented industries, from banks to back-end service providers. In banking, customer trust hinges on the security provided by banks, given their custody of sensitive data. This trust dynamic extends beyond banks to service providers and vendors involved in banking functions. Repairing a damaged reputation is challenging, as regaining customer confidence proves equally difficult.

More Damaging

Operational risk management is a common practice among most banks, yet reputational risk management often lacks the attention it deserves. Neglecting reputational risk can result in severe damage to the bank, leading to the erosion of its customer base and subsequent loss of business. Handling reputational risk tactfully at the initial stage, particularly upon receiving customer complaints, is imperative.

Many complaints, whether technical or otherwise, are resolved through personalized interactions. Reputational risk can stem from various factors, including technical glitches, hardware/software failures, and human errors such as inadequate attention to customer grievances or providing incorrect clarifications.

In the digital banking era, new-generation banks are embracing the latest digital technology and adopting digital marketing strategies. They may offer digital banking applications accessible via handheld devices, reducing reliance on traditional brick-and-mortar models. Recognizing limitations with existing Core Banking System (CBS) solutions, some banks are exploring alternative approaches, despite the challenges of implementation. Implementing digital banking solutions and introducing new products may pose difficulties, prompting banks to seek alternative solutions, despite the associated time and cost implications.

Impact of Digitalization

Traditional banks are keen to keep pace with the digital revolution to avoid falling behind. Failure to embrace. digital technologies could have widespread implications for their business operations. The reach of modern banks extends beyond urban areas, as they penetrate rural and semi-urban regions, directly competing with cooperative banks.

Customer satisfaction is pivotal to the success of banks. Doorstep banking facilitated by handheld devices, offered by authorized banks, represents the future of banking. However, as more banks transition to digital payment methods, associated risks escalate.

Banks are introducing multiple mobile applications, enabling customers to conduct banking transactions from the comfort of their homes. In such a scenario, inadequate resolution of customer grievances could not only result in customer loss but also expose the bank to legal ramifications and subsequent damage claims.

Today's payment systems cater to 24x7 banking needs, with a growing number of banks adopting digital modes. Consequently, reputational risk has become paramount. If transactions fail or are inaccurately processed, the bank's reputation is jeopardized. Customers expect prompt resolution of issues without delving into the root cause of the problem.

Outsourcing and Risk Management

Today, many banks are outsourcing their technology operations to external vendors, which escalates associated risks. It's crucial that outsourced vendors promptly address customer complaints to ensure customer satisfaction. Without streamlined processes, implementing new solutions poses risks. Proper training of staff is essential to provide customer support without relying excessively on vendors. Utilizing well-drafted business processes or job cards can aid front desk staff in addressing customer queries effectively. Some banks opt for business process re-engineering (BPR) to streamline their operations.

In many cases, people avoid responding to queries when they lack knowledge of how to handle the situation. Adequate training can prevent such scenarios. While technology training is often provided, training on addressing customer grievances may be overlooked. Banks sometimes dismiss initial signs of trouble, assuming they are isolated incidents. It's advisable to address issues promptly upon detection.

With each new technology, associated risks emerge, necessitating proactive risk identification and mitigation by banks. All customer complaints should be promptly addressed and given due importance. As the saying goes, " Once bitten, twice shy," customers who receive poor service are unlikely to return. A good customer doesn't argue; they simply switch to another bank.

Mr. Babu Venkitachalam
Banking Subject Matter Expert at Maximus