Who still needs intermediaries - The effect of disintermediation

The value chains of many industries and sectors typically involve intermediaries as links between suppliers (vendors, service providers, producers) and customers (buyers, users, consumers). Interested real estate buyers search for potential houses or apartments through intermediaries such as real estate agents, building material suppliers bring together craftsmen and manufacturers of construction materials, and fashion retailers connect consumers with textile manufacturers. Electricity traders sell us the electricity, often produced by others and transported to us by yet others. Even banks actually act as intermediaries in facilitating loans or investment products, bookstores provide access to publications, and universities serve as intermediaries between students and professors. All these intermediaries usually reduce transaction costs of otherwise uncoordinated searches for exchange partners for various tangible and intangible goods and services. These costs include expenses for search, selection, negotiation, transport, picking, contract processing, and monitoring. However, as part of the Digital Transformation, we are now witnessing the disappearance of traditional middlemen and intermediaries. We call this phenomenon "disintermediation." For example, suppliers can now sell their products much more easily directly to end customers and users, bypassing the traditional intermediaries, through digital, global networking and increasingly compatible IT systems. Let's take the fashion industry as an example – in 2018, the German sportswear manufacturers Puma generated an online revenue of 650 million euros from end customers (total revenue of 4.65 billion euros) and Adidas around 2 billion euros from a total revenue of almost 22 billion euros. What will happen when we have precise digital body measurements through 3D scanners in the future, allowing us to match them online with the offerings of fashion designers? Other prominent examples of industries affected by disintermediation include the music industry (decline of record stores), the travel industry (disappearance of many travel agencies), or the insurance industry (erosion of brokers). Some of these industries are witnessing the emergence of digital platforms with their algorithms as new intermediaries (e.g., YouTube or Check24), but in many cases, producers are also connecting directly with end customers (e.g., online offerings of hotels, airlines, or direct insurers). Digital disintermediation may even affect notaries as traditional intermediaries between buyers and sellers of real estate, the land registry office, and as administrators of trust accounts. In the Swiss canton of Zug, the first real estate transaction via an Ethereum blockchain took place in spring 2019 with a volume of around 3 million Swiss francs. The blockchain technology, as the most advanced transaction protocol for securely sending, storing, receiving, and processing digital data, will further enhance the effect of disintermediation. We are already witnessing the beginning with so-called cryptocurrencies. Despite all the hype in the media and their price fluctuations, they are still in a trial phase: banks, financial intermediaries, or financial brokers are simply no longer necessary to transfer digital assets from one user to another. Ultimately, the blockchain replaces the bank account and can essentially replicate all payment processes. What effect will blockchain-based disintermediation have on other professional groups, such as lawyers (as intermediaries of contract drafts) or bailiffs (as deliverers and enforcers of judgments and other enforcement titles)? Another blockchain-based achievement affecting the mega-trend of disintermediation is Smart Contracts. Smart Contracts technically represent the logic of contractual agreements, such as service level agreements or digital purchase agreements, and verify whether certain contractually defined requirements have been met, in order to then execute actions without human intervention. For example, the price of a car-sharing convertible offer automatically increases on sunny days, or the leasing rate of a car is debited after every 3000 kilometers of mileage. Thanks to blockchain technology, Smart Contracts are now easier to implement and more secure. And what is the consequence? There is a disintermediation of administrative staff! Why do we still need employees in invoice auditing, procurement, goods receipt inspection, contract management, etc., when automation of standard processes advances further through Smart Contracts? Because these employees are actually just intermediaries who can be replaced by algorithms.