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The money network: Why crowdfunding threatens traditional bank lending

The crowd is taking over from traditional sources of finance and it is here to stay. It’s the start of the big bank disintermediation. Unless banks join the revolution, consumer lending may no longer be their sole domain.

In December 2011, the day after 523 eurozone banks borrowed €490 billion from the European Central Bank, Chris Riley went to ask his UK bank for a £2,000 ($3,200) loan. The interest rate that his bank wanted to charge him? A staggering 24%.

Riley, a film director who had worked on several science documentaries for the BBC, had produced his own documentary, First Orbit. Working with the European Space Agency, First Orbit recreates Yuri Gagarin’s space flight around the Earth with commentary from Gagarin himself from the Russian State archives.

It had been a project of love, but had ended up being the most-watched long-form film on YouTube, with 3.5 million hits. Riley had received hundreds of requests for the movie to be released in a DVD format. "It was just unaffordable to get a small loan from the bank," he says. So Riley posted his request for funding on crowdfunding website Indiegogo. He asked for donations in return for which donors would receive the DVD and be credited at the end of the film. Riley says: "We were essentially pre-selling the DVDs and credits to pay for the production." In less than eight weeks, he had raised more than $6,000 from 95 sources in 20 countries – paying no interest.

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