The internet was beginning to do to financial intermediation what it had already done to other markets: reduce search costs, connect supply and demand directly, and challenge the economics of the middleman.
Developments in information technology are fundamentally changing the banking industry, with an exponential shift in consumer uptake of new business models set to take hold.
Information technology is reducing the search cost, so that supply and demand can meet directly and independently of their physical distance on the Internet platform. Business models whose value creation is based entirely or partially on the intermediation of supply and demand will increasingly be driven out of the market by web-based intermediation platforms.
If intermediation can move to the platform, the strategic question is no longer whether banking changes — but what remains uniquely bank-like.
Disintermediation did not begin with fintech
In the banking sector, this process of disintermediation already began with the securitisation of loans in the late 70s.
One could also refer to the securitisation of loans as an initial form of crowdfunding because, with the acquisition of a tradable credit claim, a large number of bond holders are directly connected with the issuer of the bond.
In the 90s, banks increasingly established off-balance-sheet transaction platforms (“special purpose vehicles”) as an own legal entity because they were much more flexible in terms of the securitisation. However, unlike in the real economy, the financial crisis and its resulting increase in regulation put an end to this trend towards disintermediation in the banking sector.
The reorganisation of banking
In view of the inefficiency of the existing banking system as well as the economic superiority of web-based alternatives, it seems that it is only a matter of time before a system change takes place in the banking business, argues Rainer Lenz of the University of Applied Sciences, Bielefeld.