The importance of first principles when building financial products

Building financial products is a complex process that requires careful planning and attention to detail. With so many variables and moving parts, it’s easy to get lost in the weeds and lose sight of the big picture. That’s where first principles come in.

First principles thinking is a powerful problem-solving technique that involves breaking a problem down to its most fundamental components and working from there. By doing this, you can strip away all the noise and distractions and focus on what really matters.

In the context of financial product design, first principles thinking is essential. Here are a few reasons why:

It helps you identify the core problem you’re trying to solve

When you approach a problem with a first principles mindset, you begin by asking yourself, “What is the core problem here?” This helps you cut through all the noise and distractions and focus on the essential issue that needs to be addressed.

For example, let’s say you’re designing a new investment platform. Instead of starting with the features and functionality you want to include, you start by asking yourself, “What is the core problem investors are facing that we can solve with this platform?” Maybe it’s the high fees and commissions charged by traditional brokerages, or the lack of transparency in the investment process. By identifying the core problem, you can design a product that truly addresses the needs of your target market.

It helps you avoid copying others and creating me-too products

In the financial industry, it’s easy to fall into the trap of copying what others are doing. After all, if something is working for your competitors, it must be a good idea, right?

Not necessarily. By approaching product design with a first principles mindset, you can avoid falling into this trap. Instead of copying what others are doing, you can focus on creating something truly unique and innovative that meets the needs of your target market in a way that no one else is.

Be original, innovate, you have the advantage of fresh eyes, so use it. And if you really have to copy, make it considerably better. The amount of learnings you lose when copying someone else can be the difference between success and failure, the work you copied came with a lot of decision making, and by copying you don’t know why decisions were made, so you risk making the same mistakes they did.

It helps you future-proof your product

Financial products are subject to a constantly changing regulatory environment. What was compliant yesterday may not be compliant tomorrow. By designing your product with first principles in mind, you can future-proof it and ensure that it will continue to meet regulatory requirements and customer needs for years to come with as little business and development impact as possible.

It helps you create a more user-friendly product

One of the core principles of first principles thinking is simplicity. By stripping away all the unnecessary bells and whistles, you can create a product that is easy to use and understand. This is especially important in the financial industry, where many products are needlessly complex and difficult for the average user to navigate.

By designing your product with simplicity in mind, you can create a more user-friendly experience that will be more appealing to your target market.

If we expand on this further, and you consider first principles from the perspective of a customer who has never been exposed to financial products, you have a customer who would be turned off by too much complexity, so the simpler your product, the more accessible it is, the more accessible, the more opportunity you create for your Fintech, and for your customers.

It doesn’t mean you shouldn’t have advanced features though, they should just not be a requirement to engage with the core features of your product.

It helps you stay true to your company’s values and mission

Every company has a unique set of values and a mission that guides its decision-making. By using first principles thinking, you can ensure that your product design is aligned with these values and mission. This helps you create a product that is not only successful in the marketplace, but also one that your company can be proud of.

So if you’re working to make financial products accessible the approach you take will be vastly different than building a FinTech that works purely off an API for advanced customers, or institutions.

In addition to the above points, there are a few other key factors to keep in mind when using first principles thinking in financial product design.

One is the importance of research. Before you can identify the core problem you're trying to solve, you need to have a deep understanding of your target market and their needs. This requires thorough research, including interviews with potential customers, analysis of competitors and market trends, and a comprehensive understanding of the regulatory environment.

You also need to test the understanding of who you think your customers might be and what their needs are with things like user testing, but that’s a little later on. You do however need to test your target market and features against the vision and mission of the company.

Another key factor is collaboration. Financial product design is a team sport, and its important to involve all relevant stakeholders in the process, including designers, developers, compliance experts, and marketing professionals. By working together and sharing ideas, you can ensure that your product design is comprehensive and meets the needs of all parties involved.

Finally, its important to keep an eye on the bigger picture. Financial products don’t exist in a vacuum — they’re part of a broader ecosystem that includes customers, competitors, regulators, and other stakeholders. By considering the broader context in which your product will exist, you can ensure that it fits into the larger picture and is set up for success.

Ultimately, the importance of first principles thinking in financial product design cannot be overstated. By using this powerful problem-solving technique, you can create products that truly meet the needs of your target market, are aligned with your company’s values and mission, and stand the test of time. With so much at stake in the financial industry, theres no room for anything less. This is peoples money.

In conclusion, first principles thinking is an essential tool for anyone involved in the design and development of financial products. By focusing on the core problem, avoiding me-too products, future-proofing your product, creating a more user-friendly experience, and staying true to your company’s values and mission, you can create products that truly meet the needs of your target market and stand the test of time.