John Tsang Chun-wah put significant focus on financial technology, or fintech, a potential growth area for start-ups. SCMP, February 25 And here I always thought that fintech referred to the tail adornments of 1950’s American cars, but never mind. Let’s look at some of the bright sides of this idea first. It is certainly true that Hong Kong depends on being able to jump quickly to new ideas. It is how our economy made its transitions from shipping to the rag trade and then to finance. At some point it will have to be something new again. Why not peer to peer services? And if the world is gradually moving in sales of goods to direct trade between producer and consumer, with the web knocking physical shops out of the way, why cannot it be done in finance, too? Why not go directly from creditor to debtor and eliminate the huge cost of the intermediary banks? Why should promising start-up companies not go directly to equity investors through crowd funding rather pay huge fees to listing sponsors and underwriters? Simple answer: Because there are many more promises made than delivered in finance, that’s why. Financial arrangements are about risk, about ways of assessing it, compensating for it and limiting it by spreading it around. Ignoring risk by taking promises at face value is just a way of losing money. And this is the big weakness at the heart of these fintech ideas. They too easily take debtor and issuer promises at face value. They do not pay enough attention to risk. Don’t get me wrong. I would be the first to cheer, and loudly too, if peer to peer lenders and crowd funders could come up with a way of resolving this difficulty. Nothing would please me more at the same time than to see a viable bit coin monetary system knock the world’s central banks out of the way. But when I am also told that banks only advance their money to their big corporate friends while peer to peer lenders link the public’s savings directly to the members of the public who need the money, I say, “How interesting. Do you think Leicester City will stay at the top of the Premier League?” Give me the judgment of professional bankers for my money. I do not hold the view that big corporations are inherently evil but I do believe that start-ups are inherently risky and that pawnshops have the right idea about consumer loans. Banks and underwriters have evolved because they play a useful role in society. Investment would be like buying socks on the web only if half the socks offered to you have holes in them and you don’t know which. This is why our financial secretary should be careful about how he promotes fintech. It is all very well if the effort goes into how to make fintech work effectively although I think we are still best off going abroad for this research. The interaction of money and human nature is the same the world over. But I have the impression that Mr Tsang is a fintech promoter in the sense of wanting to accelerate the use of fintech more than society is happy to do so just yet, and this could be dangerous. If it results in avoidable losses he puts himself directly to blame. It is particularly so because fintech has had no real baptism of fire yet. It did not amount to much in the 2008 financial crisis. The big test of new financial ideas, however, is recession and already we have had some bad news from the economic slowdown in the mainland with the apparent failure of the peer to peer lender Euzabo amid reports of a 50 billion yuan scandal affecting 900,000 small investors. This is where the danger lies and it is particularly a danger because slowdown is in the wind at the moment. It is a time to sit back and see how fintech fares elsewhere in the world. You would do well, Johnny, to keep those gung-ho peer to peer to peer boosters at bay just now.