THE PRAIRIE EDITOR: An Age of Disintermediation?

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

commercial trend.

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

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Copyright (c) 2022 by Barry Casselman. All rights reserved.