What Is Disintermediation and How Does It Work?
Disintermediation is the process of removing the financial middleman from a transaction. It may allow a client to buy directly from a wholesaler instead of via a retailer, or a firm to order directly from a manufacturer instead of through a distributor.
In the financial industry, it is common for an investor to purchase shares without going via a broker or financial institution. Disintermediation is commonly used to lower costs, accelerate delivery, or do both.
Background
Disintermediation is a technique used in a range of industries to reduce the overall cost of completing a transaction. By eliminating the intermediary, a transaction may be performed more quickly.
It is today a cornerstone of the business-to-consumer (B2C) model, which is frequently referred to as the online business paradigm.
It can happen when a wholesale purchase permits an interested customer to acquire items directly from the maker, often in big numbers. Because the intermediary, such as a typical retail store, is eliminated from the purchase process, the buyer may benefit from cheaper prices.
Intermediaries are frequently important in the process of delivering a product from the factory to the customer. A producer has a network of wholesalers who preorder and transport their items to retailers. They hire salespeople to help them score orders from shops.
Disintermediation is invariably linked to an increase in the burden placed on the entity employing the method. To cover the services that were previously handled by an intermediary, the organization will need to devote additional internal resources.
Disintermediation and the Internet
The internet has the potential to be a major disintermediation tool. In theory, consumers and small enterprises may make orders directly with product manufacturers. In practice, new electronic intermediates such as Amazon, Etsy, and eBay have developed. Apps are also offered through third-party platforms like Google Play and Apple’s App Store.
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