The spread of the internet changed financial services. Above all, it changed the way financial information is distributed, who has access to it, and how quickly transactions can be initiated. Clients gained the ability to compare prices, fees became clearly visible, and market data became much more widely available. These changes eroded a long-standing asymmetry in the world of finance, in which the bank, with its specialist knowledge, was, of course, the dominant party. A new category of intermediation also appeared, an intermediate layer organised around platforms, protocols and algorithms that structure access to resources and the taking of actions and decisions, without the direct participation of a human being.
The transformation described in the previous chapter did not take place in isolation. That early digitisation was still happening inside financial organisations, separated from the outside world by a tight wall. The internet, however, caused that wall to begin crumbling at speed, allowing clients almost direct access to information, interfaces and remote services. In this way, a breach appeared in the foundations of the traditional financial model: control over information.
For centuries, banks and intermediaries in the financial market benefited from their advantage in information access. They knew much more about prices, procedures, risks and other institutions than their clients did. This imbalance in access to information justified the existence of intermediaries and shaped the model of trust. The development of the internet significantly weakened that advantage. Exchange rates were available with a single click, along with comparisons of fees and commissions across different financial service providers. Product terms and conditions could be assessed directly. What previously required access to internal or professional systems became public information.
This change also shook trust in institutions. Clients no longer had to rely solely on a bank's or intermediary's reputation or on personal relationships. They could verify, compare, and question information. Even without specialist knowledge, anomalies became detectable. Greater access to information reduced dependence on institutions, but of course, it did not give any control over how transactions were actually carried out.
In the late 1990s and the early 2000s, these changes sparked lively discussions about so-called disintermediation, the elimination of intermediaries. The internet, it was claimed, would allow sellers and buyers to relate directly to one another. Banks, brokers and payment institutions would disappear because they would no longer be needed; costs would fall sharply, and the market would become fully open.
Those predictions, of course, did not come true. Some intermediaries did indeed disappear or lose importance, but some adapted. And many new forms of intermediation appeared. Above all, digital ones. Control moved from offices and bank branches to protocols, interfaces and decision systems supporting automated processes.
Concrete examples appeared very quickly. Internet merchants did not use banks or card acceptance systems directly; instead, they used payment gateways that aggregated access to different payment options and managed compliance on their behalf. Mobile applications were distributed, and still are, through platforms that control their visibility, updates, and commercial terms. Financial institutions began delegating entire groups of activities to specialised entities. This happened across identity verification, transaction monitoring, anti-money laundering measures, fraud prevention, and so on. In each of these cases, intermediation kept its position; only its scope changed. Competences are passed into the hands of participants in the process who are not visible to clients and are only partly visible to regulators.
The internet has also shortened the time. Information circulates constantly, and transactions can be initiated within minutes. That led to further evolution in expectations: immediacy became more of a default than an exception. Banking systems, designed with sequencing, delays and manual control in mind, suddenly had to face the challenge of working nonstop.
Early online banking interfaces illustrate this mismatch very well. Banks were not inventing new forms of interaction, but rather trying to repeat the familiar branch model in digital form. Passive services dominated: viewing transaction history, initiating basic transfers, and other uncomplicated functions. The aim was more to preserve the status quo than to experiment. Yet the revolution had already happened. In time, online banking became the main channel of access.
With finance moving online, a paradox emerged. Users saw more, but understood less. Interfaces displayed the balance, a confirmation that a transaction had been executed, a list of operations — that was sufficient when everything matched up. But when a problem appeared, that transparency did not translate into responsibility. Errors appear as system messages. Delays are attributed to processing. Responsibility is hidden behind technical language and the system's layered architecture.
The internet also weakened direct, local relationships. Personal contact with staff at the nearby bank branch and their knowledge of clients has lost its significance. Decisions are based on hard data, with context pushed aside. This change improves consistency and scale, while reducing discretion. Rules are applied the same way, but it becomes harder to negotiate in non-standard situations.
When the first smartphones appeared, the direction of change was already clear. Our everyday finances were no longer organised around institutions, but rather around interfaces. Control over them rested on supervision of access, data flows and the rules of participation. This situation prepared the ground for the next phase of digital finance, in which constant connectivity, being online, and embedded services entered our everyday lives.
Sources:
- Organisation for Economic Co-operation and Development, Consumer Policy and the Digital Transformation (Paris: OECD Publishing, 2018)
- Benjamin M. Friedman, “Decentralization and the Role of Intermediaries,” Journal of Economic Perspectives 15, no. 2 (2001): 23–40