Israel’s Leading Role in Fintech Innovation Drives Global Open Banking Adoption

From humble beginnings, the rapid rise of Israel’s fintech landscape into a world-leading innovation hub has served as a testament to the success of the startup nation in the 21st Century. 

Israel had around 90 fintech startups in 2009 and evolved into an influential global player in the industry by the mid-2010s. 

Today, the nation is home to over 750 fintech startups and has seen over $3 billion in funding supported by multiple accelerator programs and even a Bitcoin embassy in Tel Aviv. 

In 2023 alone, early-stage fintech funding reached a seismic $500 million in Israel, with $1.4 billion raised in the wider fintech landscape. These figures position fintech as the startup nation’s second most funded sector after cybersecurity, accounting for around 18% of Israel’s total yearly investments. 

Israel was also a key figure in the post-pandemic fintech boom, recording 119 investment deals in the sector for the first time in 2021. Although the volume of deals has since fallen, domestic fintech pioneers have continued to lead the way in innovation throughout the financial technology landscape. 

Open Banking Pioneer

One area of fintech where Israel has become a pioneer is in the burgeoning field of open banking. 2021 saw the launch of Israel’s first new bank in more than 40 years, with The First Digital Bank representing a watershed moment in the nation’s open banking reform efforts. 

In the years that followed, Israel’s commitment to open banking has seen its fintech infrastructure surpass even the United States within its specific niche, helping to lead the world in shaping the future of banking. 

Today, advances in open banking are helping Israelis to share their financial information with third parties like other fintech firms to leverage unprecedented levels of spending insights, flexible payments, and holistic investment overviews. 

Tel-Aviv bank Leumi was the first institution to roll out open banking services in a fully comprehensive manner and has opened the door for customers to perform actions that wouldn’t have been possible just a few years ago due to technological limitations. 

Away from the institutional side of fintech, Israeli open banking startups like OpenFinance.ai are helping more customers to overcome the pressures of high inflation and high-interest environments by transforming the decision-making process for credit grantors, insurers, and other firms to drive more efficiency and foster a positive customer experience.  

Given that fluctuations in interest rates due to various factors can severely impact the efficiency of decision-making processes when it comes to borrowing, the rise of these startups can unite with open banking infrastructures to improve the quality of service delivered to users around the world. 

The coming years will see open banking trends continue to take shape, with more customers seeking to access more intelligent tools to manage their finances. Israel’s strong fintech pedigree means that the startup nation will be a driving force in this maturing technological landscape. 

Leading the CBDC Charge

Last year, Israel also made its intentions to develop a ‘Digital Shekel’ clear, with the Bank of Israel establishing teams to take part in a challenge to develop a central bank digital currency (CBDC). 

Announcing the plan for a sandbox in April 2024 for the private sector to build CBDC use cases, it is hoped that Israel will develop the world’s most successful central bank digital currency to date. 

CBDCs can form an integral part of the open banking landscape, and provide a secure and efficient means of making digital payments and remittances. They can also be used for payments both online and offline, and to facilitate cross-border payments in a way that traditional currencies do not. 

While many governments have experimented with CBDCs, few boast the fintech infrastructure of Israel, and we can expect the startup nation to continue to lead the way in the production of digital currencies throughout the years ahead. 

Supporting AI in Fintech

We’re in the midst of an AI boom, and Israeli fintech is helping to democratize the technology throughout open banking. 

There are many leading use cases of AI being implemented in the fintech landscape with the help of Israeli startups. Notably, Kipp is an example of Israel’s role in driving AI-led innovation in fintech. 

Kipp seeks to solve the customer experience issue of declined transactions. While credit card issuers can automatically decline transactions because there’s too much of a risk associated, Kipp uses an artificial intelligence model to assess risk in real-time. 

As a result, customers can enjoy a frictionless transaction experience while protecting their security against instances of fraudulent activity. 

Likewise, Israeli fintech firm Obligo utilizes AI technology to assess whether individuals can rent a property without requiring an initial security deposit, helping to remove barriers to renters while protecting the interests of landlords. 

Both of these tools are integral components in a sustainable open banking infrastructure, and we can expect to see more pioneering Israeli fintechs leading the way in use cases over the coming years. 

Achieving Open Banking Sustainability

Israeli firms will help to expand the open banking ecosystem to deliver an unparalleled experience for users. 

At a time when much of the world is competing with cost of living increases and stubborn inflation rates, Israel’s fintech pedigree can actively remove the barriers to financial inclusivity to provide new efficiencies and frictionless access to services at scale. 

Open banking is the future of financial services, and Israel’s thriving startup ecosystem promises to underline its long-term sustainability through its commitment to innovation and growing high-potential enterprises.