The word “disintermediation’ is a mouthful, and a fancy term
used usually by academics and economists, but it seems the
right word to describe some significant behavior of American
consumers in these volatile times.
The word is employed in a discussion of how consumers make
their purchases in the non-traditional way of “cutting out the
economic middlemen,” and purchase goods more directly from
the producer or manufacturer.
The word seems to have first appeared in the 1960s when the
government’s actions changed some of its policies, causing
some banking customers to purchase bonds and some
other investments directly without the agency of the banks.
By the 1990a, the word had become applied to any direct
transaction which bypassed traditional middlemen such as
distributors, wholesalers, and/or retail stores.
The rise of the internet in recent decades has accelerated
the practice, providing both a platform for disintermediate
transactions, and the transparency of pricing often previously
unavailable to consumers to provide incentive to bypass
traditional supply chains of products.
Innovative manufacturers and retailers began to employ
more direct transactions with customers, Walmart and
other very large retailers were able to buy large enough
quantities of goods to bypass distributors and wholesalers
and thus offer them at lower prices to their customers,
as did Amazon. Manufacturers such as Apple and Dell
sold their products through their own retail stores, and
now Tesla is doing the same selling cars from its own
outlets without large on-premises inventories.
Distributors, wholesalers and retailers add to the cost of a
product, but they also provide necessary services in
getting a product to a customer, including advertising,
transportation, stores, sales and other personnel. If a
manufacturer or producer wants to eliminate the
middlemen, it must replace most of their services with its
own, and thus raising its costs.
Some firms abandon direct customer sales, thus producing
reintermediation or a reversal of the otherwise growing
There is also an age-related aspect to more direct consumer
transactions. Older persons, used to traditional retail stores
and less accustomed to shop on the internet, are more
reluctant to be disintermediators, and younger persons,
having grown up with computers and the internet, are more
likely to embrace new economic practices.
Whereas FDiC limits led to early disintermediation by bank
customers half a century ago, today banks see diminished
savings accounts because of low interest rates. In the short
term, interest rates are set to rise, but the need for traditional
banking services is in long-term decline, and banks are
expanding into new areas in order to survive.
Supply chain disruptions primarily caused by the response to
the pandemic are also causing economic uncertainty, and
consumers, in order to obtain the products they want, now
have incentives to try disintermediation strategies.
The economic future is always uncertain, and is especially
so as the nation and its economy go into a post-pandemic
mode and more political turmoil — with even more impact
on how and where consumers obtain their goods
Copyright (c) 2022 by Barry Casselman. All rights reserved.