With a rapidly changing social, political and financial scene around the world, maintaining trust, credibility and a strong reputation are more important than ever before. Recent events have shown that any misstep or controversy can have significant consequences, both for individuals and for organisations.

A few months back, we saw how a major financial institution's reckless communication following imprudent business decisions resulted in the loss of its ‘credibility’ and ultimately the collapse of the institution.

Trust and credibility are the foundations of all relationships, whether personal or professional. Will the communication be received and understood in the same manner, or will it have a completely opposite impact? It will depend on the credibility of the communicator. While this is true for all sectors, it is more so for the banking and financial services sector, for which maintaining a strong reputation has always been critical.

Several high-profile cases of financial misconduct have recently caused reputational damage to some of the world's most prominent financial institutions. Although the Indian financial sector appears to be less affected by the turmoil that has engulfed its Western counterparts, it is still important for the sector to up the ante in safeguarding its own interests and bolstering the trust of its customers and other stakeholders.

Challenges posed

A logical question to consider is what new challenges may arise in the future that could impact the reputation of entities in the financial sector. Larger socio-economic developments could have a long-term impact; for example, discussions of a financial reset and path-altering developments in the blockchain and crypto space could put fiat currencies and traditional financial models under tremendous pressure.

These entities also face potential disruption that emerging technologies riding on blockchain like Web3 and DeFi (decentralised finance) can create due to newer and more efficient ways to doing transactions.

Rise of generative artificial intelligence, such as ChatGPT and other AI tools, has posed another challenge for internal communication teams, who have to manage job-loss fears of employees in customer-facing roles. Additionally, it brings in higher risk of fake news and opinions, which could get prominence and impact the institution.

These developments could further heighten the trust and credibility issues of consumers and institutional investors in the financial space.

The disrupters

The larger financial institutions have also started facing serious challenges from the newer and smaller but more technologically agile Fintech players, who are swiftly acquiring regulatory licences to disrupt areas hitherto dominated by large institutions. Armed with technologies like data analytics, machine-learning, API integration, etc. to evaluate opportunities, reach-out to customers or do business transactions at B2C level on a massive scale, these players have reduced the turnaround time for decision making from days to minutes and at the same time converted their businesses into a highly scalable model.

These nimble footed business entities enjoy high credibility among audiences, whose composition is slowly changing with the entry of Gen Z. The first option for many consumers in financial services is now a fintech player. They pose a reputational challenge to many slow-moving financial institutions, which are typically thought of as large bureaucratic brick and mortar setups.

The social angle

In addition to cybersecurity risks and regulatory compliance challenges that are directly related to the core function, the financial sector also faces other significant challenges. These challenges are posed by larger causes, such as environmental, social, and governance (ESG) risks, that have come to the fore with the growing awareness among customers and investors about the practices of institutions.

The increasing activism and polarisation of viewpoints also poses a serious challenge, demanding the need for extremely careful and intense discussions when it comes to voicing opinions on popular narratives.

Traversing the high tides

Given the current scenario, how should financial sector entities adapt to these challenging times? Merely managing their reputation will no longer suffice.

Instead, it's time for them to channel their earned reputation into building trust through sustained and dedicated actions based on ethical principles and values. Positive stories are always relevant, but credibility will take the front seat. While marketing-led communication is important, a much larger and deeper role for the Chief Communications Officer (CCO) is emerging to protect reputation and improve credibility. CEOs must recognize the value that the CCO can bring to the table and rely on their wisdom for a wider and long-term benefits for the institution.

With the new generation of customers and investors becoming more tech-savvy and vigilant with lots of information channels to turn to, the sector will have to tread very carefully, more so when the mindsets are increasingly becoming binary, and any slip can quickly escalate and serve a survival blow to the institution.