Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
Despite its small size and population, Israel’s rich talent pool (governed by a deep-seated sense of entrepreneurial spirit) makes for a concentrated hub of fintech potential.
Israel may only be half the size of Lake Michigan, but there’s an awful lot of evidence for the country’s vast innovative mindset before even before getting into the topic of fintech. It is the only country whose official language (Hebrew) was converted from an unspoken one, revived in the 19th century to now be spoken by roughly 90% of Israeli Jews, amongst a large number of languages adopted by its 8 million inhabitants. The capital, Tel Aviv, is actually noted as a UNESCO heritage site, besides being the country’s main fintech centre, due to its prestigiously preserved 4,000 examples of Bauhaus architecture, dubbed ‘The White City’, and Israel is noted as the birthplace for such tech inventions as the USB flash drive, the first Intel PC processor, and Google’s ‘suggest’ function. There’s also a shop in Jaffa where hummus flavoured ice-cream is available, and the wonderfully bizarre ‘adults in fancy dress fighting in carparks’ kids’ TV treat Power Rangers is a series produced by Israeli Haim Saban. I still enjoy that show a bit too much.
“Silicon Wadi” Stats
Statista’s summary notes that this year has seen the transaction value in fintech reach US$10,763 million, and is expected to reach US$19,399 million by 2022; an annual growth rate of 15.9%. Rather impressively is the fact that the number of potential users of fintech is expected to reach 7 million people, only a million less than Israel’s total population. With such a large opportunity to benefit this tech-savvy nation, it’s lucky that entrepreneurs and startups are responding to meet this growing market.
In Deloitte’s annual fintech hub review, Israel’s capital Tel Aviv scored 21 on the Global Innovation Index, as well as being considered the 38th best Global Financial Centre on the globe. It’s certainly a fact that even from as early as the turn of the century, Israel has been a forerunner in fintech investment to reach these heights. In fact, the region now raises venture capital per capita at a rate of two and a half times the rate of the United States and a whopping 30 times that of Europe. It’s hardly surprising given the five-fold growth of fintech since 2002. The Digital Finance Institute notes the figure for this year being 90. In 2016, it stood at 430.
That is in fact 10% of the 4,000 startups that are housed in Israel, the largest number of startups based outside of Silicon Valley, with almost 100 companies listed at Nasdaq, third only to startup behemoths the US and China. Israel has been recognised as the “Startup Nation” worldwide for this reason, and attributed as being in the top three countries “with the most attractive ecosystems for fintech startups” by PwC.
Chutzpah and Yozma
There’s certainly plenty of reasons for Israel’s charm, drawing in this plethora of budding investors. That connotes the country’s character; Israel’s successful entrepreneurial culture built around risk-tasking and audacity is defined by the Yiddish term “chutzpah”. It’s a nationwide feeling that permeates “Silicon Wadi”, the affectionate dubbing of the country’s Silicon Valley-esque achievements in the tech space, which also benefits from the arrival of tens of thousands of immigrants every year. This article notes how there’s one startup per every 1,800 inhabitants, still a high density of companies therefore despite an influx of people. Silicon Wadi, mainly situated on Israel’s coastal plain, encompasses not only the tech-centric Tel Aviv tractor beam, but also Ra’anana, Petah Tikva and Rehovot, recognised as a hotbed for education. Jerusalem, in recent years, has become a new destination of choice for hi-tech establishment. Much of this chutzpah can also be attributed to Israel hi-tech guru Yossi Vardi, who has founded and assisted in setting up around 85 companies in various spaces.
Israel’s startup community covers essentially every financial sector, including:
Despite its advanced expertise in tech, the crossover to fintech through working with traditional players is still in its early stages. Despite some banks showing a certain amount of enthusiasm – Bank Leumi has launched a fintech innovation hub with investment vehicle Elevator, and Bank Ha’Paolim co-operates with Microsoft Ventures – regulation remains fairly rigid. According to Financier Worldwide, lawyers and accountants in the country are attempting to facilitate communication between traditional financial institutions and innovative startups through the education of regulatory requirements. Licensing restrictions do make it difficult for small players to enter the market however.
Venture capital firms are particularly helpful in raising funds and assisting startups, with Israeli technology companies raising a record $4.8 billion in 2016; from as early as 1993, the “Yozma” program (“initiative” in Hebrew) supplied tax incentives to foreign venture capitalist investment in Israel, which also offered to double the investment with funds from the government. However, places such as Jerusalem have a large number of VCs, but not quite the level of resources that powerhouses such as Tel Aviv have, as noted here.
From a research and development (R&D) perspective, there are very few places better than Israel to see this being put into practice. It is home to over 220 multinational R&D centres, with R&D grants from the government accounting for 20-50% of the total approved expenditure for projects. Besides governmental support, global banks and tech firms have started to increase their focus on setting up R&D centres and accelerators in the country, including such name as Barclays, Citi, SunGard, PayPal, Intuit, RSA and IBM. Elsewhere, Israel’s Economy Ministry’s Chief Scientist Avi Hasson signed an R&D agreement with the Commonwealth Bank of Australia to develop joint fintech research projects.
Tel Aviv also funds free co-working spaces for entrepreneurs, and in a particularly inspired effort to educate the already entrepreneurial nation – with many ‘returners’ to Israel coming back from Wall Street and London – the city has formed a program which allows officials to meet regularly with millennials in bars to discuss municipal affairs and support entrepreneurial growth. What better way to increase fintech innovation than in the city’s most popular young hotspots?
The popularity of R&D centres to build local tech talent can also be attributed to the Israeli Defense Forces. In what is another unique aspect to Israel’s fintech sphere is the role of its armed forces and intelligence units, whose expertise in big data, analytics and cryptography has boosted the country’s abilities in the development of its technological capabilities. Israel’s tech community is characterised by its quite literal “army of entrepreneurs”; in particular, Israel’s Intelligence Unit 8200 has become synonymous with the rise of a startup culture, and is particularly advancing knowledge of cryptocurrencies and cybersecurity (with data protection of course lending itself to the fintech world in the transactions and payments space). One cybersecurity company, Team8, has received investments from both Microsoft and Qualcomm, whose CEO is Nadav Zafrir, the former commander of Intelligence Unit 8200. Israel receives 20% of global investment in cybersecurity, not surprising considering its 450 or so startups in the field.
Tel Aviv has also been voted the fifth best destination for bitcoin advancement in the world, being one of the original cities to open a bitcoin ATM to the public, and 38 Israeli startups are known to be developing applications of Blockchain technology too, in services such as security, hardware, online commerce, P2P payments etc.
In very recent news however is the Israel Tax Authority’s (ITA) attempt to retain Israeli entrepreneurs in Tel Aviv despite Initial Coin Offering (ICO) issues. Currently, the city has a problem with ICO due to parties being domiciled elsewhere (usually Switzerland or Gibraltar); the government loses out on tax revenues and the ability to market Israel as an attractive destination for ICO. With help from Deloitte, the ITA has published a draft circular outlining how a domestic company’s ICO revenue could be taxed, as well as planning to legitimise companies that are financed by ICOs, especially as the Israel Securities Authority (ISA) hasn’t formally authorised the legitimacy of ICO tokens. The head of the ISA has also expressed how the regulator is seeking to ban any company from listing on the Tel Aviv Stock Exchange (TASE) involving themselves in bitcoin trading. Watch this space.
Israel’s huge amount of networking events, conferences and accelerators however is clearly determining the growth of fintech startups, paving the way for even further venture capital investment, being one of the world leaders for funds. Below, to cap us off, are Israel’s accelerators, local VCs, and startups:
Jerusalem Venture Partners
From the KPMG Fintech 100 2016…
#18 – OurCrowd – An equity-based crowdfunding platform for investors providing venture capital funding for Israeli (and now global) startups. Focusing on early-stage startups, OurCrowd sources deals and accepts companies that have passed a due diligence process onto its platform. Not only the first Israeli-centric investment platform, it is one of the world’s leading accredited investor only platforms. As of 2016, OurCrowd and its investor community invested over $300 million for more than 100 companies and funds. It was founded in 2013 by Jonathan Medved (CEO) and Steven Blumgart (Chairman), based in Jerusalem.
DMWay – An AI-driven analytics platform designed to make the concept accessible and affordable for all businesses, without the data science specifics necessary. The solution allows users to develop a predictive model in hours using an automated approach and technology which mimics experienced data scientists. It was founded in 2015 by Gil Nizri (CEO) and is also based in Jerusalem.
Innovative Assessments – A platform which uses psychometrics to assess a borrower’s creditworthiness based on their risk behaviours. Their flagship product – Worthy Credit – is a short survey used to determine these, with the scores used to help lenders approve more loan applications and service current accounts more efficiently. Based in Tel Aviv, Innovative Assessments was founded in 2015 by its CEO and Chief Scientist, Saul Fine.
PayKey – A fintech which enables banks to provide customers with their services – from P2P payments to chatbot engagement to cash withdrawal – from any mobile application. PayKey’s technology is the first of its kind to link banking and social networks for maximum user experience. The company was founded in 2014 by Daniel Peled (CEO) and Offer Markovich (CTO), based in Tel Aviv.
TipRanks – This platform uses Natural Language Processing algorithms to aggregate and analyse big financial data online to help individual investors make better investment decisions. By working with the largest banks and brokers in the world, they are able to provide interactive research tools for investors as well as giving insightful information and education. Users can search for stocks and assess a live-feed of top analyst recommendations. TipRanks was founded in 2012 by Uri Gruenbaum (CEO) and Gilad Gat (CTO). It is also based in Tel Aviv.
Zooz – A payments platform connecting multiple financial institutions, e-wallets, alternative payments methods, fraud management and much more, tracking transactions through the entire payment process. All payment data is analysed by the platform to allow merchants to personalise customer experiences online and in-store. It was founded in 2010 by Oren Levy (CEO) and Ronen Morecki (CTO) and based in Ra’anana.
And from the more recent KPMG Fintech 100 report…
#25 – OurCrowd (another appearance!) has also been voted #10 in the top most innovative companies in 2015 here.
ThetaRay – Using AI and big data analytics technology, ThetaRay’s algorithms are able to detect anomalies on a live basis and identify emerging risk for financial institutions, industrial manufacturers and infrastructure providers. It was founded in 2013 by Amir Averbuch and Ronald Coifman. The CEO is Mark Gazit.
VATBox – The first cloud-based solution to automate VAT recovery and enable global compliance and governance, as well as safe data storage and management. Expenditure control enabled by the platform can produce accurate and valuable returns. Founded in 2012 by Noam Guzman (President) and Isaac Saft (CEO), VATBox is based in Tel Aviv.
With chutzpah, monumental amounts of venture capital investments, accelerators and startups with a huge depth of knowledge in hi-tech and security, with slightly more resources Europe’s most Silicon Valley-style country could challenge even the fintech capabilities of countries far superior in size in the next couple of years.
If you have any thoughts about Israeli fintech, let us know in the comments below, or you can tweet us.