Israel has many obstacles to overcome, despite its wealth of talent. [ ] I don't believe that any of these obstacles will stop Israel from creating disruptive global fintech startups, which will be game-changing companies.
This was in 2018, when I was trying to find out if Israel could become a global fintech hub. This prediction, which I made three years ago, has now become a reality.
2019 saw Israeli fintech startups raise over $1.8 billion. In 2020, however, they are said to have raised $1.48 Billion despite the pandemic. According to IVC Research Center, Meitar Law Offices, Israeli fintech startups have raised $1.1 billion in the first quarter 2021.
It is therefore not surprising that Israel boasts more than a dozen fintech unicorns across sectors such as banking, payments, insurtech and lending. Some of these have reached the desired status in the beginning 2021, like Melio Global and Papaya Global which raised $110 million each.
Over the years, I have been privileged to invest as both a venture capitalist, and personally in several successful fintech companies in the U.S., Israel, and emerging markets Alloy and Unit, MoneyLion and Migo, Unit and AcroCharge.
These years have seen major changes in fintech worldwide, including the adoption of advanced AI-based technology, increased regulatory scrutiny, an innovative approach by financial institutions to form partnerships with fintechs and, of course, COVID, which forced consumers into digital transactions.
The pandemic forced fintechs into being essential to business survival. They were the primary contributor to the rapid migration towards digital payments.
What is it that makes Israeli-founded fintech startups stand out from other scaling companies across the pond. First and foremost, Israeli founders have brought to the table a unique perspective and understanding of the gaps within their respective focus industries. This could be Hippo and Lemonade for property and casualty insurance or Rapyd, Melio and Earnix for business-to-business payment.
This is especially true given the fact that many of these Israeli founders didn't grow up in financial services but instead recognized the gaps and built their industry knowledge (in some cases, by hiring or partnering industry experts and advisors during their ideation stage, strengthening their knowledge, and then sought to create more innovative and customer-focused options than most financial institutions can offer.
With this in mind it is clear that the Israeli fintech sector has gradually transformed into a mature ecosystem. It now includes a mix of local talent that has scaled to success, a global network of insurance and banking partners that has recognized Israeli fintech disruptors, and smart, fintech-focused venture capital. This combination will ensure that Israeli fintech entrepreneurs are successful.
Technology is also a significant contributor to fintech industry. It's not enough to be a unicorn with only the tech at the back.
The most important difference between Israeli fintech and other ecosystems is their strong technological barriers. This infrastructure was built from scratch, which allows for more customization, compliance, security, etc. The following is my prediction for where Israeli fintech startups will be market leaders:
Voice-based transactions
Voice technology has advanced significantly over the years. Where once you thought you were speaking to a robot; now you can talk to financial institutions and apps that offer an automated experience that sounds and feels exactly like a company employee.
Israel is a growing market leader in voice tech. Companies like Gong.io provide insights for remote sales teams. Bonobo (acquired from Salesforce) provides insights from customer support calls and texts. Voca.ai (acquired via Snapchat) offers an automated support agent to replace large-scale call centers.
