Although there’s no doubt that Israel has become a country renowned for its innovation, the country’s emphasis on cybersecurity means that its feats in other technological landscapes can go under the radar. 2021 saw Israel climb into the top three of Findexable’s Global Fintech Rankings – illustrating the startup nation’s ascent into the world of financial services. As a fully-fledged global leader, there are no signs of slowing down in the entrepreneurial melting pot of Tel Aviv.
Israel’s progress in the fledgling fintech ecosystem has been breathtaking. In 2020, the country’s position in the Global Fintech Rankings was 12th, making its climb to 3rd place the most profound move among the list’s top 16 nations in 2021. Tel Aviv also rose from 18th to 5th within the fintech hub rankings.
The good times may be set to roll in Israel too, as recently announced ‘dramatic’ reforms to the banking sector appear set to pave the way for more competitive rates and a greater range of financial services for customers.
As part of the Economic Arrangements Bill that accompanies the state budget, the proposed reforms passed their first reading in early September. The move represented a key moment in the tenure of Prime Minister Naftali Bennett, having been the first time budget legislation was approved in parliament since 2018.
Among a range of proposals in the Arrangements Bill, open banking reforms are intended to generate more competition for Israel’s financial sector by allowing non-banks to offer services at a competitive rate whilst reducing costs for consumers. Regulations are also set to be eased on financial institutions in a move that could open the door for far greater innovation.
So how did Israel come to rub shoulders with the US and UK at the pinnacle of fintech services in 2021? Let’s take a look at how a nation of nine million grew into a global leader in financial technology:
Spotting Market Niches
How has Israel grown into one of the major players in the fintech ecosystem? The answer stems from the country’s entrepreneurs having the pedigree and perspective to spot market gaps and train their focus on providing fresh solutions to users. There are many examples of these niche-busting companies across the country already, with Hippo and Lemonade in the fields of property and casualty insurance.
In the world of fintech, we’ve already seen the likes of Earnix and Personetics disrupt the banking data and analytical landscape – which utilize AI and other emerging technologies to provide a far more personalized experience to users.
Interestingly, many of the Israeli innovators that are making waves across the world of fintech hadn’t naturally grown within the industry, but recognized the gaps from the outside looking in, and utilized their entrepreneurial know-how to develop more comprehensive problem-solving and customer-focused solutions than what many financial institutions could offer prior.
As data shows, Israeli fintech is spread across a wide range of different concentrations, meaning that solutions can accommodate a broad selection of industry needs. We can also see some of the country’s cybersecurity pedigree rise to the fore, with anti-fraud, risk and compliance comprising 13.4% of active fintechs across the country today.
This passion for addressing a range of niches has aided Israel’s fintech market towards transitioning into the mature ecosystem that it is today – with a combination of local talent, which now benefits from expertise emanating from a range of local fintechs that have successfully scaled their operations.
Furthermore, a growing global network of banking and insurance partners have also begun to sit up and take notice of Israel’s disruptive role within the fintech industry, and firms are welcoming greater levels of venture capital to go along with this recognition. Such financing will undoubtedly help the growth of a strong startup ecosystem into a market that’s ripe for scaling.
Shaping the Future of Fintech
Whilst strong business minds and residents with powerful entrepreneurial mindsets have undoubtedly aided the growth of Israeli fintech, it’s the startup nation’s pedigree for advanced technological innovation that sets its fintech industry apart from competitors around the world.
The strong technological barriers and infrastructure built from the ground up enables endeavours to be more bespoke, compliant and secured – paving the way for brand new innovations across the industry.
We’ve also seen shades of Israeli fintech inspiring startups around the world. In firms like Connectum, we can see evidence of the swift and painless cross-border secure payments that can be leveraged in multiple currencies at play. This technology has also been built through innovative Israeli fintechs like Initiative Q. Likewise, we’ve also seen the AI-based investment management technology that powers companies like FinityX help to generate greater levels of industry competition and innovation.
Israel’s meteoric rise among the world’s leading fintech nations should be no surprise given the country’s entrepreneurial pedigree. Now, as a more favourable financial infrastructure looks set to be on the way, and with continued VC interest, we could be set for a golden age of fintech innovation within the melting pot of Tel Aviv. With this in mind, Israel’s stake within the future of finance technology seems to be assured.