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Banking 2.0 - Why CPOs Matter?

Aug 10, 2023

As the digital age reshapes the world of finance, traditional banking structures are witnessing a transformation. The Chief Product Officer (CPO), a role predominant in tech and consumer goods industries, is now emerging as a critical player in the banking sector. But why is this shift happening, and what does it mean for the future of banking?

In this article, we’ll explore:

  • Why banks do not have Chief Product Officer (CPO) roles,
  • How the bank would benefit from the CPO role,
  • How to divide responsibility for business results between the CPO team and BusinessLine owners,
  • Which KPIs should PM in a Bank be responsible for.
A bank that is ready for the next jump

Understanding the Absence of CPOs in Traditional Banks

Banks and other financial institutions may not traditionally have a Chief Product Officer (CPO) role for several reasons:

  • Historical Structures: Banks have traditionally been organized around functions, not products, such as retail banking or asset management.
  • Stringent Regulatory Climate: Banking’s regulatory landscape necessitates strong teams in compliance, risk management, and legal affairs, often sidelining rapid product innovation.
  • The Long-standing Stability of Banking Products: Unlike the dynamic tech industries, most banking products (e.g., loans, deposits) have slowly evolved.
  • Alternative Titles with Overlapping Duties: While the title of CPO might be missing, roles like “Head of Retail Banking” often cover similar responsibilities.

With the rise of fintech, many banks are adopting more technology-driven approaches and may incorporate roles like CPO. Fintechs and neo-banks (like Chime, Monzo, Starling, N26, and Revolut), which provide banking services but with a strong technology underpinning, often have CPOs or similar roles, reflecting their product-driven nature.

The Advantages of Having a CPO in Modern Banks

If a bank aims to offer various digital products and wishes to remain competitive in the modern banking landscape, having a Chief Product Officer (CPO) or an equivalent role can be a strategic move. Here are some reasons why:

  • Creating a Cohesive Product Vision: By ensuring that various product platforms operate under a unified vision, CPOs can enhance user experiences.
  • Prioritizing the Customer: CPOs bring a user-centric approach to product development, vital in the digital age where user experience can set a bank apart.
  • Enhancing Cross-Departmental Collaboration: Bridging the gap between departments, CPOs can foster more synchronized product development strategies.
  • Staying Competitive in a Fintech Age: Having a CPO can help traditional banks keep up as fintech becomes more prevalent.
  • Incorporating Risk Management in Product Development: Beyond innovation, CPOs can ensure that new digital products align with the bank’s risk mitigation strategies.

That said, merely having a CPO role is not a silver bullet. The bank’s top management and board must support and empower the CPO. The role's success also depends on the broader organizational culture, the agility of the bank’s operations, and its willingness to embrace change and innovation.

Defining the Boundary: CPOs and Business Line Owners

When introducing a CPO into a bank’s structure that already has multiple business line divisions, it’s crucial to ensure a clear delineation of roles and responsibilities. The goal is to maximize collaboration, avoid conflicts, and ensure that each division’s goals align with the bank’s overarching strategy.

Here’s how a bank might handle its structure with a CPO while maintaining other division heads:

  • CPO’s Sphere: primarily responsible for the strategy, design, and delivery of digital products across the bank. Focus on the customer experience.
  • Heads of Business Lines: would continue to be responsible for their business line’s overall strategy, P&L, customer relationships, and operations. These division heads would provide domain-specific insights, requirements, and feedback to the CPO for product development.
  • Regular Check-ins: Ensure the two entities communicate frequently, aligning strategic visions.
  • Walking the Regulatory Tightrope: CPOs will be responsible for crafting product designs while the business heads ensure regulatory compliance.

Introducing a CPO ultimately accelerates digital transformation and enhances customer experience across all products. Proper delineation and collaboration between the CPO and business line heads will be vital to achieving these goals.

Juggling Profits & Losses: A Shared Responsibility?

In traditional organizational structures, P&L (Profit and Loss) responsibility typically rests with the business line heads because they are accountable for their specific business segment's overall performance, revenue generation, and cost management.

When a CPO and product managers are introduced into the structure, it can complicate how P&L is managed. Here’s how this can be approached:

· Shared Responsibility:

While the business line heads have the overall P&L responsibility, product managers might have “virtual” or “influence” P&L for their products. This means they would monitor and understand their products' revenue and cost implications but wouldn’t necessarily “own” the final P&L.

Product managers should be aware of the financial impact of their decisions and work with business line heads to ensure products are profitable.

· Metrics and KPIs:

Product managers would have KPIs related to user engagement, product adoption, user satisfaction, feature usage, etc. These metrics would indirectly influence the P&L.

The financial outcomes, like revenue generation or cost savings from digital products, would feed into the overall P&L of the respective business line.

· Collaboration on Pricing:

While product managers would be closely involved in designing and iterating product features, pricing decisions might be made collaboratively with business line heads, especially since pricing can significantly influence P&L.

· Cross-Functional Teams:

Consider creating cross-functional teams where product managers, business line representatives, finance personnel, and other stakeholders work together on specific digital products. This integrated approach ensures that all aspects, from product design to financial implications, are considered.

In essence, while business line heads would retain the ultimate P&L responsibility, product managers under the CPO would play a crucial role in influencing the financial performance of the products. The key is to ensure alignment and collaboration between these roles, with a shared focus on creating successful, profitable digital products.

KPIs for Banking CPOs and Product Managers

For Chief Product Officers (CPO) and their Product Managers in a banking setting, KPIs should be designed to reflect the organisation's strategic goals and the specific objectives of the digital products they oversee. Here’s a breakdown of potential KPIs:

For the Chief Product Officer (CPO):

Product Portfolio Performance:

  • Overall user engagement across all digital products.
  • Revenue generated from new product features or products.
  • Efficiency gains or cost savings attributed to digital products.

Innovation Rate:

  • Number of new products or major features launched per year.
  • Percentage of revenue from products launched in the last 1–2 years.

Customer Experience:

  • Net Promoter Score (NPS) across digital products.
  • Customer satisfaction scores for major product launches.

Team Performance and Development:

  • Employee engagement or satisfaction within the product team.
  • Rate of skill development or training completion in the product team.

Operational Efficiency:

  • Time-to-market for new products or features.
  • Adherence to product development budgets.

KPIs for Product Managers:

Product Performance:

  • Monthly Active Users (MAU) or Daily Active Users (DAU) for their specific products.
  • Conversion rates (e.g., from trial users to paid users or from app download to account creation).

Financial Metrics:

  • “Influence” P&L for their products (understanding revenue contributions and cost implications, even if they don’t own the P&L).
  • Revenue growth or cost savings attributed to specific features they’ve overseen.

Customer Experience:

  • Product-specific Net Promoter Score (NPS).
  • Customer satisfaction and retention rates.
  • Customer support tickets or issues related to their product.

Feature Performance:

  • Usage rates of newly launched features.
  • Feedback scores or ratings for specific features.

Operational Metrics:

  • Adherence to product development timelines.
  • Number of product bugs or issues reported post-launch.
  • Efficiency metrics, like the number of iterations needed to reach product-market fit.

Collaboration and Alignment:

  • Feedback scores from cross-functional teams (like marketing, sales, or tech) on collaboration with the product manager.
  • Alignment with business line objectives (feedback from business line heads).

Both for the CPO and Product Managers, the KPIs should be revisited and adjusted periodically to ensure they remain relevant to the bank’s strategic objectives and the dynamic nature of the digital product landscape. It’s also beneficial to ensure a balance between quantitative metrics and qualitative feedback to get a comprehensive view of performance.

To conclude

As the lines between tech and banking blur, incorporating a CPO role in banks seems beneficial and inevitable. Such a transition will undoubtedly demand a reimagining of traditional structures and roles. But, in a world where innovation is critical, can banks afford to ignore this evolution? What do you think?