Reintermediation

What Is Reintermediation?

Reintermediation is the movement of investment capital into secure bank deposits or the reintroduction of a middleman between a supplier and a customer. This term, the opposite of disintermediation, can be used in several contexts within finance. 

Understanding Reintermediation

Reintermediation has two main meanings. The term can either refer to:

1. Money flowing back into the banking system: Individuals withdrawing funds from non-bank investments, such as real estate, and depositing them into bank and depository financial institution accounts.
2. Reintroducing a middleman between a supplier and a customer: Companies sometimes find it more efficient to outsource some of their business activities to intermediaries, typically for a commission or fee. This enables them to better focus on what they do best.

Money Flowing Back Into the Banking System

Usually, the hunt for higher yields leads funds to flow away from depository institutions, such as credit unions, savings institutions, and commercial banks, in a process known as disintermediation.

Reintermediation occurs when there are concerns about the direction of financial markets and investment returns. When the market fluctuates and interest rates are high, money tends to flow back into federally insured accounts.

Reintroducing a Middleman Between a Supplier and a Customer

Companies operating disintermediated business models have a lot on their plate. Dealing with all pre- and post-sales activities, such as meeting customer service requirements, handling shipping, and managing supply chains, requires a lot of time, energy, and resources.

To tackle these challenges, reintermediation measures are sometimes taken. Supply chain middlemen are reintroduced to lighten the load and enable producers to focus solely on manufacturing the best end product possible.

This form of reintermediation has risen to prominence since electronic commerce (e-commerce) became a part of everyday life. The general consensus was that the internet makes it easier to sell directly to customers and provide them with support, eliminating the need for middlemen. Online shopping initially spurred a wave of disintermediation. Reintermediation followed later after companies recognized that they still needed extra help.

Middlemen can provide expertise on the entire market of goods as part of their service offering. However, on the flip side, reintermediation can be a costly process. Either the company must stomach these extra fees or pass them on to customers, leading the price the end consumer pays to rise.