Banks and startups, the two worlds could hardly be further apart.
Banks: colossal institutions, conservative in nature, often centuries of history.
Startups: minimal staff, innovative and fledgling businesses.
So why are some of the world’s major financial institutions heading to Tel Aviv to set up start-up accelerators?
The answer: Fintech (financial technology).
In the most recent development of the Startup Nation, the Israeli fintech space has earned the attention of banking institutions both in Israel and abroad. While there have been some notable success stories (Fundtech, Nice Systems and now, Check), Israel isn’t entirely famous for its fintech startups.
However this is beginning to change.
So what is fintech all about?
Fintech in broad terms refers to the technologies and software available that ensure the smooth operations of the banking and the financial services industry. The services and applications developed in this space include electronic payment platforms, international money transfers, personal finance and asset management and crowdfunding.
While the fintech market currently stands at $470 billion annually it is expected to grow at 5.4% annually. According to a recent report global investment in fintech has increased 3 fold in the last 5 years from $930 million in 2008 to $2.97 billion in 2013. In the coming years it is expected to take a bigger chunk of the overall VC investment.
When startups and financial centers collide
Pre-2008 major banks were reluctant to embrace the services of smaller technology vendors. This would stunt the banks’ ability to innovate as well as preventing the technology from gaining any foothold in the banking industry. But the financial crisis changed all that.
Banks were forced to re-evaluate the extent to which they could manage the industry. Financial and regulatory constraints have made the major institutions realize the importance of embracing innovation and developing relationships with entrepreneurs. Banking has become increasingly driven by the consumer experience. Innovation and technology is the only real competitive advantage.
The main international financial centers, New York and London, have established fintech accelerators with some of the major players of the banking world including JP Morgan, Citigroup, Morgan Stanley. The availability of industry expertise in these centers provides ample support and mentorship for entrepreneurs in this space.
Convergence from the opposite angle
Where Tel Aviv is markedly different is that it is entering the space from the opposite angle. While it has become almost legendary for its innovation and entrepreneurship, it is less known for its financial institutions. Not anymore.
According to a recent report, the Israeli metropolis, has moved up 11 places from last year and is now rated 21st on the list of global financial centers. Banks are coming to Israel to embrace innovation whereas elsewhere entrepreneurs are trying to get noticed by banks.
While banking giants Citigroup and Barclays have been operating in Israel for a while, they have recently taken the initiative to capitalize on the environment in which they finds themselves. Following the lead of New York and London’s fintech innovation labs, Citigroup has established its own accelerator program in in TLV, while Barclay’s has established an in-house R&D center, attracting some of the best minds to pioneer the upcoming technologies. Local bank Leumi has partnered with Elevator in the establishment of an accelerator program and Hapoalim is planning to invest $23 million in Israeli fintech.
Israeli startups gaining traction
While Tel Aviv is poised to benefit from this interest, there are some notable Israeli startups that are gaining traction in local and international markets:
- BillGuard – a personal finance app that identifies deceptive, erroneous and unauthorized charges on consumer credit card and debit card bills.
- eToro – a social investment network that allows its users to follow the financial trading activity of other investors and copy them.
- Payoneer – a provider of global payout solutions, offering a secure, simple & cost-effective way for companies to pay people and businesses worldwide.
- ZooZ – enables app developers to start accepting in-app payments with multiple payment options.
- Pango – offers advanced cellular parking and fueling payment solutions.
The Israeli fintech industry saw a lot of high-profile attention this year, the most prominent example being the recent acquisition of bill-payment service provider Check by Intuit for $360 million. Check’s smartphone app is used by more than 10 million people to track and pay their bills. Following the completion of the sale, Check will become Intuit’s research and development center in Israel. As 2014 progresses, we can expect to see and hear a lot more about VC’s and angel investors investing in and promoting the fintech market in Israel.
If you would like to keep track of the FinTech space, other sectors or the opportunity to invest in the Start Up Nation visit www.ourcrowd.com.
|Dave graduated from the Honors program in Monetary and Financial Economics at the University of Johannesburg, South Africa. He moved to Israel in 2013 and works in the finance department at OurCrowd.|