Having been involved in the world of FinTech for over 35 years, I believe that there has never been a better opportunity for Israel to become an even more significant player in the world of FinTech, which has been an important focus for us here at Viola Ventures since the fund’s inception. The success of Israel’s FinTech industry is already widely recognized by leading global financial institutions and service providers, and the future is still full of possibilities. In fact, the Israeli FinTech industry continues to grow so impressively that it’s attracting more and more entrepreneurs and increased funding. So how has Israel managed to secure such a well-earned spot at the forefront of FinTech Innovation? Here are some of my thoughts.
The Financial Services industry is undergoing fundamental business and technological changes, creating numerous opportunities for the Israeli Hi-Tech industry for new services and business models.
Israel’s long-established FinTech legacy
Israel’s FinTech industry is already fairly developed and has attracted some of Israel’s and the world’s leading investors in the field. This has fueled a great deal of innovation and investment from people who truly understand the industry.
Israel has a great deal of fundamental experience and knowledge in technologies that are becoming increasingly relevant to the modern world of FinTech, which is more personalized, consumer-friendly, mobile, and aims to reach populations that aren’t able to get any (or sufficient) financial services. Such technologies include expertise in Real Time Analytics, Algorithmics, Big Data, Risk Management, Anti-Fraud and Security.
Another important factor is the ability of Israeli entrepreneurs to apply online marketing knowledge, developed for sectors like gaming and AdTech, coupled with sophisticated risk scoring algorithms to address the growing demand of P2P and SMB lending, with companies like FundBox, eZbob, BlueVine and Behalf that have attracted significant amounts of funding recently.
Most importantly, a legacy has developed in Israel of FinTech companies that have become leaders in their respective fields, such as Actimize in the area of fraud prevention, FundTech in the area of transaction banking solutions, Retalix in the area of Point-of-Sale, Trusteer in the area of cybercrime prevention, and Sapiens in the area of Insurance.
As a result, we’ve seen a few things happen:
Firstly, we’ve seen a deep understanding and massive amounts of knowledge emerge about the global FinTech industry, its requirements and business practices.
Secondly, Israel has seen very successful FinTech companies grow and nurture entrepreneurs and executives who have a great deal of go-to-market expertise, and most importantly a growing group of “second-time” entrepreneurs who have already built a successful company in the past and are now on to their second FinTech venture.
David Sosna and David Govrin who founded Actimize (the leading worldwide provider of financial crime, risk and compliance solutions which was acquired in 2007 by NICE Systems) and went on to found Personetics (online personalized guidance solutions to the consumer banking industry).
Yuval Tal who founded Borderfree (global e-commerce solutions that went public on the NASDAQ and was recently acquired by Pitney Bowes) also founded Payoneer (cross-border e-Commerce payments platform).
Illit Geller who was EVP Business Development at Traiana, which was acquired in 2007 by ICAP (infrastructure for post-trade processing and risk management) has gone on to found TradAir (front office optimization solutions for financial institutions).
Reuven Ben Menachem who originally came from Mint Systems and has gone on to found FundTech which went public and was recently acquired by D+H for $1.2B.
These are just a few examples of a strong representation in Israel of highly experienced people who know what it takes to sell “FinTech Grades” solutions to the financial services world and to build leading companies in this sector.
Furthermore, there are thousands of Israelis working in the global financial services industry mainly on Wall Street and in London both on the technological and business fronts, many of whom return to Israel with a deep understanding and knowledge, and this adds yet another element of sophistication to the home-grown talent.
In addition to the long list of successful FinTech companies that went public or were acquired by leading players, there are many more Israeli startups that are addressing emerging FinTech sectors including Payments, Trading & Investing, Lending & Financing, Cryptocurrency, Customer Engagement, Personal Financial Planning, Anti-Fraud, Banking & Insurance and more.
Here’s a map we created, outlining Israel’s FinTech landscape.
A strong FinTech ecosystem with a bright future
Over the past few years, a very strong FinTech ecosystem has evolved in Israel thanks to continued overseas interest, a local commitment to innovation, and a community that’s dedicated to addressing the emerging needs of this industry.
Many global leaders of financial institutions understand that there is a great deal of knowledge here that’s relevant to them, and as a result they have either already created a presence here or are keen to create one, in the form of R&D centers and accelerators.
For example Barclays and Citi have very large development centres in Israel and Visa has recently announced their “Visa Europe Collab”. Also, some of the leading players in the financial market such as SunGard, PayPal, Intuit and RSA have growing R&D centers here in Israel.
We’re also seeing – almost on a weekly basis – visits by delegations from the world’s leading financial institutions, that are eager to tap into Israeli technology, and some of these institutions also invest in Israeli FinTech. For example PingAn (a leading private Chinese financial services conglomerate) has invested both in Viola Ventures and in Payoneer (a Viola Ventures portfolio company) and eToro; Santander Ventures has invested in MyCheck, and there are many others that regularly come to explore and scout for potential investments.
Israeli financial institutions (both banks and credit card companies) have always been open to innovation. They constitute a great ‘beta site’ for local innovation and many of them have beefed up their investment, now boasting highly professional innovation divisions of their own. Some of them are also involved with accelerators, for example Bank Leumi joined forces with startup investment fund Elevator and Bank Hapoalim joined the Microsoft Ventures Accelerator.
I can say that on a personal level, the first solution that I sold to Bank Leumi was in 1979 and since then all the companies that I’ve been involved with have successfully used a beta site with Israeli Financial Services players and eventually grew to become very significant companies in their own right, like Mint Systems, Actimize and TradAir.
We also have a very active FinTech community and a healthy variety of meetups, including our own Viola FinTech Forum which brings together FinTech entrepreneurs to discuss different trends and areas within the FinTech industry.
All of this has led to a dramatic rise by Israeli investors in FinTech companies.
Last year Israeli investment in FinTech represented 12% of total investments, and judging by the current rate of investment I believe that this year it will continue to grow.
There is no doubt that outside of the US, Israel is one of the world’s leading hubs of FinTech development and innovation and thanks to its impressive legacy and thriving ecosystem I believe that it can still enjoy significant growth by addressing the needs of both the developed and emerging markets.