Disintermediation: Finance's Quiet Revolution Explained
Alright, let’s talk about something that’s quietly, yet profoundly, reshaping the financial world as we know it: disintermediation. If you’re scratching your head wondering what that mouthful means, don’t worry, you’re not alone. But trust me, once you grasp it, you’ll see its fingerprints everywhere, from how a small business gets a loan to how your digital money moves around.
Having spent years navigating the intricate currents of financial markets, I’ve witnessed firsthand how quickly things can pivot. Back in the day, banks were, well, the banks. They were the undisputed gatekeepers, the essential conduits for everything from deposits to loans, a cozy existence built on their central role as intermediaries. But the world keeps spinning, doesn’t it? And sometimes, that spin kicks out the very steps you thought were always there.
In simple terms, disintermediation is the removal of the intermediary or “middleman,” in a transaction or a chain of transactions. Think about it: remember when you bought music at a record store or booked travel through an agent? Those were intermediaries. Now, you stream music directly from artists (or platforms that license from artists) and you book flights straight from airline websites. That’s disintermediation in action.
In finance, it’s fundamentally about bypassing traditional financial institutions like banks. Instead of depositing money with a bank (who then lends it out) or borrowing from a bank, parties are finding ways to connect directly. The financial system, as defined by sources like the “Aprende qué son los mercados financieros en 5 minutos” video, has traditionally consisted of three parts: financial markets, financial institutions (the intermediaries) and supervisors. Disintermediation challenges that second part, bringing borrowers and lenders closer or users and financial services closer, without the bank acting as the essential bridge.
So, why are these once-indispensable intermediaries suddenly facing an existential threat? It’s not one single big bang, but rather a perfect storm of technological innovation, evolving regulatory landscapes and a persistent hunt for better yields and greater efficiency.
This is probably the biggest piece of the puzzle. The sheer pace of technological advancement, especially in what we broadly call “fintech,” has been staggering.
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Fintech Innovation: New business models, powered by digital capabilities, are emerging faster than ever. As highlighted in a course at Columbia Law (“Fintech Innovation in Financial Services”), these innovations are fundamentally altering how financial services are delivered, often by bypassing traditional structures. Think about payment apps, robo-advisors or peer-to-peer lending platforms. They’re built on tech that allows direct connection, cutting out layers of legacy infrastructure and cost.
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Blockchain & Digital Assets: The rise of blockchain technology and digital assets like cryptocurrencies and stablecoins is a game-changer. These technologies enable transactions to occur on a decentralized ledger, potentially without the need for a central bank or financial institution to verify and record them. It’s early days for mass adoption, but the underlying potential is undeniable.
Sometimes, the established rules for traditional players create opportunities for new ones.
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Agility Outside the Box: New fintech players and direct lenders often operate with less stringent regulatory burdens, at least initially. This isn’t always a good thing, as it can introduce new risks, but it allows for faster innovation and more flexible product offerings. Traditional banks, burdened by years of complex regulations (and rightly so, given their systemic importance), often struggle to match this agility.
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Tailored Solutions: Direct lenders can offer more bespoke solutions for specific market segments, like small to medium-sized businesses (SMBs) or certain real estate developers. These are often niches where traditional banks, constrained by their balance sheet and regulatory capital requirements, might find it harder to operate profitably or with the necessary speed.
In a world of low interest rates, investors are constantly seeking better returns and businesses are always looking for more efficient ways to access capital or manage their money.
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Direct Access to Capital: For businesses, especially SMBs and real estate bridge financing borrowers, direct lending funds are becoming an increasingly attractive alternative to banks (Strafford, “Structuring Direct Lending Funds,” webinar July 29, 2025). Why? Because they can often secure financing faster, with less red tape and sometimes with more flexible terms than traditional bank loans. For investors, these funds offer higher potential yields than traditional fixed-income investments.
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Streamlined Processes: Think about how long it used to take to get a bank loan approved. The paperwork, the endless meetings… While banks are certainly digitalizing, many direct lending platforms offer significantly faster, often almost instantaneous, approval processes, thanks to automated underwriting and digital verification. It’s an undeniable draw for businesses that need capital quickly.
This isn’t some theoretical concept; disintermediation is playing out in very real, tangible ways right now, shaping the competitive landscape of finance.
Perhaps one of the clearest examples is the booming direct lending market. As an alternative to traditional bank loans, particularly for businesses that banks might deem too small or too risky, direct lending funds have stepped into the void.
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Growth Segment: We’re seeing a significant shift. Small and medium-sized businesses and certain real estate developers are increasingly turning to direct lending funds instead of banks (Strafford, “Structuring Direct Lending Funds,” webinar July 29, 2025). These funds, often managed by asset managers like Barings, connect institutional investors directly with borrowers, cutting out the commercial banking middleman. It’s a win-win for those seeking specific financing solutions and investors looking for attractive risk-adjusted returns.
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Niche Dominance: This isn’t just about general corporate loans. We’re talking about very specific areas like real estate bridge financing, where speed and flexibility are paramount. Banks simply can’t always compete with the agility of these specialized funds.
This is a particularly fascinating and at times, unsettling, front in the disintermediation battle. The crypto industry is maturing and its potential to disrupt traditional banking is very real, especially for regional banks (Schwab Network, “Bank Earnings Recap,” July 18, 2025).
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Stablecoins and Deposits: Stablecoins, designed to maintain a stable value, are increasingly integrating into the mainstream banking system (Ainvest, “Stablecoins Reshape Banking,” July 19, 2025). While Morgan Stanley analysts, cited by Ainvest, suggest they aren’t yet a full substitute for traditional bank deposits, their utility for “fast settlement and global dollar access” makes them incredibly attractive, particularly for institutional users. Imagine moving large sums of money globally in minutes, rather than days, without traditional wire transfer fees.
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Regulatory Concerns: However, this directness comes with its own set of challenges. Stablecoins are typically “not backed by federal deposit insurance or subject to share insurance by the National Credit Union Administration (NCUA)” (Ainvest, July 19, 2025). This lack of regulatory oversight means higher risks for consumers and businesses, including “credit risk and liquidity imbalances,” which could lead to market volatility. It’s a Wild West scenario in some respects, which supervisors are desperately trying to tame.
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Market Impact: The potential impact isn’t trivial. Morgan Stanley analysts warn of a “2% T-Bill market risk” posed by stablecoins (Ainvest, July 19, 2025). That’s a significant figure, underscoring just how large and interconnected this emerging digital economy is becoming.
So, what does all this mean for the big banks we’ve always relied on? It’s not an immediate death knell, but it’s certainly a wake-up call.
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Regional Bank Vulnerability: The threat of disintermediation from crypto is particularly acute for regional banks (Schwab Network, “Bank Earnings Recap,” July 18, 2025). Why? They often have “limited resources to adapt” compared to their larger counterparts. Think about it: a small regional bank might not have the budget or the tech talent to build out new digital services or integrate blockchain solutions as quickly as a global behemoth.
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Giants Adapt: Larger banks, like Goldman Sachs (GS) and JPMorgan (JPM), are often favored in this new environment (Schwab Network, “Bank Earnings Recap,” July 18, 2025). They have the scale, the capital and the technological prowess to not only adapt but to benefit from these technological changes. They can acquire fintechs, invest heavily in their own digital platforms and leverage their existing client relationships to offer a broader suite of services that integrate new technologies. They’re also poised to benefit from a pick-up in M&A and IPO activity, which often accompanies such market shifts.
Looking ahead, it’s clear the financial landscape will continue to evolve rapidly. The lines between what a “bank” is and what a “fintech company” is will likely blur even further. Will we see more direct connections or will new types of intermediaries emerge? Probably both!
From my vantage point, the key for any player in this space-whether a centuries-old institution or a scrappy startup-is adaptability. Those who understand the underlying forces of disintermediation, embrace technological innovation and pivot strategically will be the ones that thrive. It’s not just about cutting out the middleman; it’s about redefining value and finding the most efficient, transparent and user-friendly pathways for financial flow. And honestly, isn’t that what progress is all about?
Disintermediation is the ongoing, technology-driven removal of traditional financial intermediaries, pushing direct connections between parties and challenging established banking models, particularly impacting regional banks while favoring larger institutions capable of significant adaptation and investment in new technologies like fintech and digital assets.
References
What is disintermediation in finance?
Disintermediation is the removal of intermediaries, allowing direct connections between borrowers and lenders, bypassing traditional banks.
How does technology influence disintermediation?
Technological advancements, especially in fintech, enable direct transactions and innovative financial solutions, reducing reliance on banks.