How Disintermediation Impacts the Financial Services Industry & How You Can Mitigate Risk to Your Business
“Disintermediation is the process of cutting out one or more middlemen from a transaction, supply chain, or decision-making process. In financial terms, disintermediation involves the removal of banks, brokers, or other third parties, allowing individuals to transact or invest directly.” – Investopedia
So what does disintermediation mean to financial services companies? A decrease in the need for your services, added competition, and downward pricing pressures that can reduce your income.
Disintermediation: Examples by Industry
With the rise of technology, disintermediation is increasing across all financial service sectors. Here’s how the trend is affecting some industries:
Banks / Credit Unions
The rise of neobanks and fintech companies are starting to seize market share and are likely to continue doing so. According to Insider Intelligence, 40 million U.S. adults will have digital-only bank accounts by the end of 2025.(1 – 3)
Financial Advisors
Investing apps, robo advisors, and other technology options are a growing trend in the investment advisor arena. “One of the biggest challenges facing investment advisory firms today is disintermediation. People can invest by themselves rather than hiring an investment professional to manage their money.” – Charles S. Gofen, Principal, Gofen & Glossberg.(4)
Insurance Organizations
Insurance companies are increasingly finding themselves completely disintermediated from the end consumer. As the changing buying demands of the customer become increasingly technology-driven, there is no longer a fundamental requirement to deal with an insurance company, according to Mark Broadhurst, European sales director at insurance software provider Intellect SEEC.(5)
Realtors & Real Estate Sales
“Real estate companies such as Zillow, Redfin, Opendoor, Compass, and others are investing heavily in the burgeoning ‘iBuyer’ market that lets people quickly buy and sell homes online.”(6)
Mortgage Brokers & LO’s
While new technologies can help mortgage originators, as their tasks are outsourced to automated methods, their role in the process is reduced. “Half of large institutional lenders, or those with 200 or more employees, indicated that less than 50% of their loan applications were submitted online.”(7,8)
Accountants & Tax Professionals
The rapid growth of DIY programs, apps, and software is attracting clients who would otherwise need support from a licensed professional. “By 2019, nearly 40% of U.S. taxpayers filed online and some 40 million of them did so with TurboTax.”(9)
5 Tips to Mitigate the Disintermediation Risk
There are ways to separate yourself from competitive options that eliminate the need for your services. The key elements center around value alignment, your expertise, and your education. Here are 5 tips you can employ to acquire new clients and retain existing ones:
Leveraging those Tips into a Cohesive Strategy to Reduce Disintermediation Risk
Building a social impact campaign centered around financial wellness can give you a cohesive way to leverage the tips into an actionable strategy. From marketing to prospect interaction and client services, leveraging a social impact campaign offers financial service providers a powerful way to connect with the community and highlight their leadership.
Consider the fact that 53% of participants said a brand with community commitment was a leading purchasing driver. And 87% of consumers give loyalty to companies who support a cause that’s important to them. Social impact programming is a powerful strategy that can offer protection from disintermediation.