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Fintech Innovation from solution – based approach: First Principles Design

Wanyi Wong, FinTech leader, PwC Singapore agreed that FinTech will transform the business landscape, but how to best adopt and embed a FinTech-centred strategy, underlined with inclusion, trust, transparency and accountability1, with an aim to emerge as serious contenders and industry leaders?

Within ASEAN, to date, there are 3,408 FinTech companies operating across sectors1. As the number of FinTech companies continue to grow year-on-year, there will be constant challenges at both ends of the corner; i) Co-founders of the FinTech start up to be able to secure Pre-Series funds amid higher volume of competition bidding for the same funds and, ii) FinTech investor communities in ensuring the proposed deals are ‘quality deals’ that are ‘realistically’ a game changer along with strong potential valuations. These challenges will result in lengthy diligence process from current average of between 3 to 5 months per deal, to up to 9 months or more.

Hence, it is important for aspiring FinTech companies to establish a clear value proposition from the onset by adopting to the First Principles Design as a framework approach to FinTech innovation2. First Principles is a solution-based approach to problem solving. It brings you back to the physics of the design and aims to create new solutions from scratch after revisiting every assumption for a given problem. It differs from design by analogy whereby you attempt to find better ways to iterate on a base design and aims to find technical solutions to previous limitations which, in the long run, can be proven costly to maintain. First Principles Design provides guidance towards determining core value proposition of a FinTech company:

  1. Questions the problem, assumptions, and implications – What are the problem(s) to be solved? What are the underlying assumptions used? What are the implications of the problem(s) not being solved?
  2. Understands people and their needs – What do customer wants? Will the solution to the above problem suited their needs? Will they subscribe to it once the solution is made available?
  3. Observed and empathises with the target user – Can the above hypothesis be tested and confirmed with the customer? Can you secure a buy-in from the customer?
  4. Identifies alternative strategies and solutions that might not be instantly apparent – If the above solution is not commercially or practically feasible, is there other alternative to the strategy and solution?
  5. Involves ongoing experimentation, sketching, prototyping, testing and trying out concepts and ideas – ‘How Might We’ (“HMW”)? Design, develop, test – iteratively.

An example of successful First Principles Design is M-Pesa in Kenya. M-Pesa is a branchless, mobile phone-based money transfer service, payments and micro-financing service.3 It was launched in 2007 by Vodafone Group plc and Safaricom during the time Kenya population was 37mil with limited banking infrastructure. Leveraging on its wide telecommunication footprint, M-Pesa began expanding into financial services to serve the far-unreached and unserved population. To date, M-Pesa is servicing over 49.7mil customers over 7 countries with more than 900,000 agents, 15bil transactions in 2020, and have lifted at least 2% Kenyan households out from extreme poverty.

M-Pesa has also added full fledge banking products such as Tap and Pay NFC card, loan and savings products, payment and purchases and government services on its platform. Outside financial services sector, Space X by Elon Musk is another successful First Principles Design. It is the first one to create and successfully land a recyclable rocket with fraction of the cost. First generation of iPhone by Steve Jobs was also the result of First Principles Design4. Rather than enhancing from the likes of popular (back then) Motorola flip phone, Palm Pilot or Nokia phones, Steve Job’s started from scratch in reimagining a phone, with large screen built-in browser and iPod music device combined into becoming world’s first smart phone.

In conclusion, adopting to Elon Musk’s First Principles Thinking5 allows you to identify and define your current assumptions, break down the problems into fundamental principles and allows you to create new solutions from scratch without the legacy limitation of existing model. By identifying strong core value proposition, FinTech companies can be expected to produce high ‘quality deals’ with sustainable business model with clear core competency that can help to win crucial funding from the investment communities.

Hudhaifa Ahmad is Executive Director of MyAngkasa Digital Services; CEO of MYISCO

The views expressed are those of the writer and do not necessarily reflect those of Bank Negara Malaysia, the organiser of MyFintech Week 2022.

[1] Source: “FinTech in ASEAN 2021: Digital takes flight”

[2] Reference to First Principles Design Case Study by NUS Business School, National University of Singapore

[3] https://www.vodafone.com/about-vodafone/what-we-do/consumer-products-and-services/m-pesa

[4] http://brettking.com/first-principles/

[5] https://medium.com/the-mission/elon-musks-3-step-first-principles-thinking-how-to-think-and-solve-difficult-problems-like-a-ba1e73a9f6c0

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