FinTech in Israel

Tokyo FinTech had the opportunity to learn about the FinTech ecosystem in Isreal from Nir Netzer, Chairman of the Board at FinTech-Aviv, the Israeli FinTech Association. While the full conversation is available via our Podcast, we have extracted some of the highlights of our conversation here.

You have just finished your Annual Summit, congratulations on that — what were some of the key takeaways?

This was our second conference, and it was really outstanding, we had 800+ attendees hosted on two floors, with more than 40 global speakers on the stage. We hosted nine panel discussions, several keynotes, and several fireside chats with senior executives from the financial industry, including Visa and TD Bank, among others.

Our startup competition had nine startups pitching their solutions, and the three winners will go with us to the LendIt FinTech conference in New York (since the podcast recording, this has been moved from May to the late summer or fall). Next year, it is going to be from March 1 to 3, 2021, Monday to Wednesday, so please mark your calendars.

What segments are the three startup winners operating in?

One was an InsurTech, another operates at the intersection of authentication and risk assessment because, using face recognition to assess the risk of a borrower based on the shape of your face, and the third solution was a compliance startup that allows text messaging between bankers and their end clients in a secured environment.

The InsurTech is using Internet-of-Things (IoT) data on, for example, the usage of your toothbrush — how long you are brushing your teeth, how well you brushing — to determine the premium for your dental insurance based on the risk profile that the data allows them to construct.

The Compliance startup provides seamless communication across a number of platforms, so that the banker can remain on their system, and the customer can use the messaging app of their choice. The platform also ensures adherence to privacy regulation like GDPR.

Fantastic — so what was your motivation to start FinTech-Aviv?

We founded FinTech-Aviv six years go, in 2014, so we were quite early, with the aim to support entrepreneurs by helping them to export Israeli technology to different countries. Over time, we came to understand that we have created something very valuable, which is the network, the matchmaking capability between Israeli startups/technologies and potential clients such as overseas banks, insurance companies, investment houses, credit card bureaus, etc. These incumbents are all interested in Israeli FinTech and cyber security technologies. We help them to track down the most suitable technologies to either integrate in their day to day operations, or to invest in them.

The spark that got us going was that our friend and partner came back from the UK at the time and wanted to establish a payments company, which turned into currencytransfer.com. The challenge then was to get the attention of global financial institutions and exhibit what we have in Israel in terms of technology, and the level of innovation.

So we built a community. Our first event took place in a bar and we had 40 entrepreneurs in the room. And ever since we kept on doing that every couple of months. By now, we have hosted more than 50 events, and with 8,000 people in our community, every event draws between 300 to 400 participants, with the annual summit double that.

It takes time to establish something like this, but eventually you see that if you share values, if you really contribute and share as much as you can, you create a vibrant ecosystem that all the players are enjoying.

Israel, of course, is Startup Nation and there is lots happening across all the different industries. Where does FinTech stand relative to all other industries within Israel?

I have to say that FinTech is very dominant in Israel. USD 8.5bn were invested in Israeli startups in 2019, and close to USD2bn of that went to FinTech startups, so it is about 20%. In addition, the maturity of FinTech startups is quite impressive, because the average round for a FinTech is almost double that of other industries, with USD 28m vs USD 15m. So it is more mature, but less startups with only 64 deals in 2019.

These are mature companies with market ready products serving hundreds, thousands of clients, often overseas. 90% of the startups in Israel are exporting their solutions. Israel itself, with hardly 9m citizens, is not considered a big enough market. Correspondingly, we see that 73% of the capital is coming from global investors, and only 27% from local Israeli investors.

Let us try to analyze why FinTech is booming in such a way in Israel. I think there is a lot of connection to Israel’s global success in cyber security. Take, for example, companies such as Checkpoint, and some others that really scaled globally. These Israeli cyber security solutions that are available both to financial institutions and often also to governments have built a very good reputation for Israeli tech in general. So when the FinTech wave started, the Israeli tech scene understood the opportunity, with more and more entrepreneurs focused on building FinTech solutions.

What role does Asia play in this ecosystem?

I have to admit that the lowest hanging fruit for Israeli startups probably would not be Asia. There are several reasons for that. If you take China as an example, it is very challenging to comply with Chinese regulation. And even though it is a huge market, it is difficult to be successful. I think that Israeli technology companies are looking at other parts of Asia, Southeast Asia, and obviously also Japan.

There is huge interest in these markets. But I still think that it is quite challenging the for a young startup with a small team to fly several hours to serve your client, so naturally, the closest market would be Europe, with just a little time difference. Europe has a set of regulation that is largely harmonized, and it is relatively easy to comply as it is quite similar to what we have in Israel.

Europe is quite mature in accepting Israeli FinTechs, and willing to work with Israel and with Israeli solutions. Also the government relationships we have there through the embassies, it is relatively easy to export Israeli tech into a single country in Europe as a launching pad, and then from there penetrate the rest of the continent. So you can start in the UK, or you can start in France, you can start in Spain, and then spread your solution across Europe.

The next territory will be the USA. But over there, you also have a very challenging situation with more than 40 different sets of regulations, state-by-state. FinTech obviously is a highly regulated business, so you cannot escape that.

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