Disintermediation or intermediation the choice is yours…but get it right

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It may sound like a question on a popular game show but the challenge of Disintermediation is taxing treasury departments around the world.


This is by no means the most attractive noun in the financial lexicon and is probably one which bankers would like to see removed from the dictionary. However, with lending tight and regulation constricting lenders’ opportunities, there is a definite shift in the lending landscape.




Corporates have been affected by the recent trends, hit by internal regulatory requirements but also by the increased costs of traditional lending. Treasurers have consequently been forced to re-assess bank credit lines and the latter’s counterparty risk. Capital markets have thus become a more attractive option to match funding needs.


This where the talk of disintermediation has come from, with bank lending being disintermediated on the capital markets. This means new approaches for corporate treasurers. Banks may well be trying to regain lost ground by looking at chain finance but the ever-changing market is presenting them with real challenges.


Issuers are demanding transparency and access to the debt capital market and with the emergence of digital platforms and the new web-based market for borrowers and issuers, there is a potential for disruption in the capital markets.


Another phrase which has increasingly been coined is whether corporates will “become their own banks”. This is unlikely to happen anytime soon. Corporates are clearly contributing heavily to the disintermediation of the banks through the identification of alternative funding sources. Nevertheless, companies and banks have a great deal invested in their cross-border business.


Disintermediation is partly being driven by regulation as it places a strain on the corporate-bank relationship. But just as it drives alternative funding markets, it also drives innovation, and this can work on two levels. Firstly, allowing treasurers to look at alternative funding, but also meaning that banks have to look at what they can offer their corporate clients.


One key area in which banks can drive advantage is that of expert advice. Treasurers have a close relationship with their bankers, and this two-way information feed can mean that their relationship becomes even stronger as funding options continue to develop.

One aspect of this is the risk involved in disintermediation in new issues. Robo advisers mean that the banks must keep abreast of any developments in the Fintech sector.


Other markets such as equities and currencies are dealt, and some government bonds are issued are pointers. Corporate bonds are next in line in terms of issuing and pricing. Treasurers and banks are aware of this and global analysis suggests that we will see a new model for corporate bonds in the not too distant future.




This is a huge market and continuing to grow as companies look for alternatives to traditional borrowing. In 2017 the corporate bond market was worth US$2trn. The strength of the market combined with the impact of MiFIDII on transparency means that digital platforms are increasingly influential. Constant technological innovation means that the market is being shaken and treasury departments are under pressure to press ahead with innovation with its cost-cutting possibilities. This can only lead to more disintermediation in the links between corporates and banks.


Many tech companies are throwing their hats into the ring and finding huge operations ready to take their advice and skills onboard. New digital marketplaces for debt capital have seen huge deals taking place in recent months seeing corporates exchanging promissory notes of eye-watering amounts. Such deals reduce the effort to align supply and demand for promissory note loans.


Creators of these new platforms are committed to avoiding conflict of interest in the markets while assuring transparency. They also aim to give investors and issuers control of the information via increased transparency. This should be an alternative to the banking sector’s new digital solutions to bond issuing. The advantages of increased security in end-to-end processing and the reduction in paperwork is a major attraction.


There is little doubt that disintermediation is moving the options away from the banks. Capital markets across the world are growing rapidly and treasury professionals are aware of how their own role is changing within their companies. Making a decision on embracing disintermediation is always going to be difficult but evidence suggests that he who hesitates will be lost.


Whether caught in the glare of a quiz show host or fielding questions from the board, a measured response is going to be essential.


Simon Lynch is the owner of Treasury Talent.

Treasury Talent is a specialist treasury talent, recruitment and search provider solely focussed on the treasury market with offices in Sydney covering Australia, Singapore covering Asia, and San Francisco covering California and the USA. To make contact simon@treasurytalent.net

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