Financial Disintermediation process

The process of removing available funds from a financial institution and investing them directly into another project is known as financial disintermediation. Disintermediation, in other terms, is a method of removing intermediaries from the transaction process. It is typically used to generate a larger income by investing in instruments. The basic goal of disintermediation is to lower the cost of executing a transaction. Another motive for disintermediation is to improve a product’s or service’s transaction capability (Chircu and Kauffman, 2000). The most known disintermediation example occurs when a wholesaler allows a willing buyer to purchase directly from the producer. It results in lower prices for the services as far as an intermediary is removed from the transaction chain. It helps the customer to save more cost that they could have been incurred. Most companies do not offer direct services to clients since it requires significant investment for shipping and processing of their orders. (Shunk, 2007)

Bonds Assurance Disintermediation Process

Bonds assurance disintermediation process is used by many companies to secure their surplus funds. The client borrowing the funds creates a bond issue in the form of other options of building a capital such as a custom loan. Working with an interested buyer, the borrower can get funds in the absence of an intermediary.

Additional Burdens of Disintermediation

A company using disintermediation is associated with some burdens. Offering the services directly to the clients, business is expected to perform duties and incur costs that are supposed to be handled by another person. If a company is issuing bonds, then it is projected to set more time and employ more staff to help in offering the service. Wholesalers offering the services or product directly to their customers incur the cost of shipping the product and any other fees charged in the transportation process. (Sahil, 2011)

Conclusion

In conclusion, disintermediation puts more burdens to investors because they are the ones responsible for all decisions and actions performed in it. Disintermediation makes the transaction process take more time and a lot of company’s dedication. Some investors find these aspects more demanding depending on the investments required and individual plan.

References

Chircu, Alina M. & Robert J.Kauffman(2000): Reinter mediation Strategies in Business-to-Business Electronic Commerce, International Journal of Electronic Commerce.

Sahil, A. I. (2011). Disintermediation. Business Learners.

Shunk, D., Carter, J. R., Hovis, J. & Talwar, A. (2007). Electronics industry drivers of intermediation and disintermediation. International Journal of Physical Distribution & Logistics Management