Legal Definitions - intermediation

Intermediation refers to any process where a third party, known as an intermediary, facilitates a connection, transaction, or relationship between two other parties. This third party acts as a go-between, often streamlining interactions, providing expertise, or managing resources that flow between the primary parties. In a financial context, it specifically describes financial institutions collecting funds from one group (like savers) and then deploying those funds (e.g., through loans or investments) to another group (like borrowers or businesses).

• Example 1: A Real Estate Agent

  Imagine a homeowner who wants to sell their property and a prospective buyer looking for a new home. Instead of the seller having to advertise widely and the buyer having to search exhaustively, a real estate agent steps in. The agent lists the property, markets it to potential buyers, arranges viewings, and helps negotiate the sale price and terms between the two parties.

  This illustrates intermediation because the real estate agent acts as the intermediary, connecting the seller and the buyer and facilitating the complex transaction that might not occur as smoothly or efficiently without their involvement.

• Example 2: An Online Freelance Platform

  Consider a small business that needs a new website designed and a freelance web developer seeking clients. An online platform (such as Upwork or Fiverr) allows the business to post its project requirements and the developer to offer their services. The platform facilitates communication, manages project milestones, and processes payments between the two parties, often taking a small fee for its service.

  Here, the online platform is the intermediary. It brings together service providers and clients who might otherwise struggle to find each other, streamlining the process of hiring and getting work done.

• Example 3: A Wholesale Distributor in a Supply Chain

  Think about a large electronics manufacturer that produces thousands of units of a new gadget and numerous small retail stores across the country that want to sell this gadget. Instead of the manufacturer selling directly to each individual store, a wholesale distributor purchases large quantities from the manufacturer. The distributor then breaks down these bulk purchases and sells smaller, manageable quantities to the various retail stores, often handling logistics and delivery.

  This demonstrates intermediation because the wholesale distributor acts as the go-between, connecting the manufacturer with many retailers. This process makes it more efficient for both the manufacturer to distribute its products and for the retailers to stock their shelves.