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Comment by lorddoig | Hacker News Reader

> Should all the financial regulation exist?

Almost certainly not. The regulatory burden of operating in the finance industry is overwhelming - innovation is not so much stifled as killed. The big boys thrive because the little guy doesn't stand a chance from the get-go. The whole industry is estimated to be worth ~17% of global GDP and that money, which is almost equivalent to the output of Europe (or every country in the world except the top ~17 richest nations), goes to a list of companies so small you could probably write their names on a single page. It's a joke.

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It's far from obvious that the industry would be more diverse and less consolidated if regulations were relaxed. The overwhelming majority of that gigantic flow of money is not main-street retail activity; it's financial engineering serving the operational needs of giant corporations, none of whom are interested in e.g. working with a YC startup for their commercial paper needs.

I profoundly disagree. You may very well be right about the majority of that money servicing large corporations, but bear in mind that we're talking about a pot of money the size of Jupiter here. Payment processing alone is worth somewhere in the region of 1trillion USD annually. And that's just for moving money i.e. shuffling rows around databases. Bitcoin, while definitely imperfect, offers the hope of innovating this whole industry into oblivion and replacing it with something entirely autonomous.

The insurance industry is worth another ~5trillion USD annually. The name of the game here, of course, is predictive analysis and I'd bet that my Netflix recommendations are more accurate than any assessment any insurance company has ever made of me.

I think you'd have diversification up the wazoo in extremely short order.

Edit: accuracy

Payment processing alone is worth somewhere in the region of 6trillion USD annually

This seems unlikely. Is this a top-line number? Why aren't existing VISA/MC processors the largest companies in the economy? The number you just gave is orders of magnitude higher than Apple's profits.

A couple minutes Google searching suggests that being a card issuer puts you in a relatively low-margin business with absolutely enormous network effects.

It's a number I found some time ago that on further investigation appears to be quite wrong as you say. It seems it's closer to 1tn USD annually, which would rank around number 16 in world GDP tables.

Edit because HN isn't allowing a reply: these numbers are industry revenue, not profit.

    https://www.bcgperspectives.com/content/articles/financial_institutions_pricing_global_payments_2014_capturing_next_level_value/
    http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?order=wbapi_data_value_2013+wbapi_data_value+wbapi_data_value-last&sort=desc

That huge number also does not square with the 2014 profits of the largest issuers. Look at Amex and Discover, both of which have relatively pure issuer/payment processing businesses.

Now it decides I can reply.

It's revenue, not profit, because I'm coming at this from the perspective of money (potentially) wasted. It's all in the first link.

"The regulatory burden of operating in the finance industry is overwhelming"

That's not a reason in itself to not have it. I don't care if the rules are hard to follow. If you don't want to deal with them, go do something else.

"innovation is not so much stifled as killed."

If the "innovation" is stuff like mortgage backed securities, then good riddance. Finance is not a place where innovation should be happening.

"The whole industry is estimated to be worth ~17% of global GDP"

Which is about 17% too much for an industry that doesn't actually produce anything of value.

Really. Not every industry needs to be "fail-fast" and "innovative." "Fail-fast nuclear reactor" doesn't have a good ring to it, for instance.

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