BTL 734 - Disintermediation in Banking

 

The Banking Tutor’s Lessons

BTL 734                                                                          15-12-2024

Disintermediation in Banking

 

Disintermediation in banking is the process of moving saving and borrowing activities away from banks and toward nonbanks. It can occur when consumers or savers find better deals with nonbank alternatives.

 

Some examples of disintermediation in banking include:

 

Investing directly in Securities: Consumers can invest in securities like stocks, bonds, and mutual funds without using banks or brokerage firms.

 

Using digital-first banks: Consumers can choose to bank with digital-first banks that offer better rates and lower fees than traditional banks.

 

Using peer-to-peer lending platforms: People can borrow money from each other without going through a bank.

 

Disintermediation can be driven by a number of factors, including: High cost of raising capital for banks, Increasing deposit insurance premiums, and Banks' inability to raise capital.

 

Disintermediation can have benefits for consumers, producers, and buyers, but it can also have negative consequences for some businesses. For example, disintermediation can lead to lower costs for consumers and greater business revenue, but it can also decrease the number of retail stores for some brick-and-mortar businesses.

 

Sekhar Pariti

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