Payment services provider Payoneer, one of the country’s more established fintech players, registered triple digit year-on-year growth in Asia since 2012. Mobile payments keyboard Paykey and data-driven payments platform Zooz are two other Israeli payments services that are part of KPMG’s top 100 fintech companies.
Insurtech is also on the rise. Earlier this year, startups GetmeIns and Seegnature shared the top prize in JVP’s insurtech competition The competition shows that investors see much potential in the segment. Recently, small business insurer Next Insure raised another $29 million from its latest round of funding.
These are just a few of the many developments in Israel’s fintech. Here are three reasons why the country is shaping up to be the promised land of fintech.
Israel has developed to become a strong tech contender globally. The country’s geopolitical situation contributes to it. With a population of just under 9 million and situated near areas of conflict, Israel is compelled to create innovative and sustainable efforts. Tech became a perfect industry to cultivate given that the country doesn’t have much natural resources to fuel other industries.
Many young Israelis get to explore tech as part of their mandatory service in the defense force. This exposes them to practical hands-on work on critical projects involving cybersecurity and big data. Transitioning to tech ventures became natural for many finishing their service.
Israel also leads the world in early fintech adoption according to a Blumberg Capital report. The country also boasts of a large young population which allows companies to readily try out digital products to actual users. The younger generations have proven to be more open in trying out new digital services.
In addition, funding isn’t hard to find. Thanks to the clout the industry has developed over the years, local and international investors and venture capitalists have been keen on funding Israeli startups. Some entrepreneurs prefer to bootstrap their efforts, but might also opt for small business loans from lenders and fintech companies when in need of additional capital. Government grants are also available.
Israeli ventures have found quite the success finding spaces in which to participate even if creating a unique proposition has become tougher as more players compete in the various fintech verticals.
For example, insurtech company Lemonade promises fast processing of insurance and claims by using artificial intelligence and a mobile app instead of brokers and paper that the current system espouses. In addition, part of its unique proposition is to donate a portion of premiums to charities of the customers’ choosing if they don’t make any claims. Lemonade markets itself as insurance with a conscience – a stark contrast to the typical bad press and reputations many traditional institutions have.
Other Israeli startups focus on underserved need areas. For instance, GetmeIns offers a fraud detection and prediction service for insurance companies using military grade intelligence. Fraudulent claims continue to be a problem for the insurance space amounting to $80 billion a year. Instead of competing with established insurance companies, GetmeIns offers a solution to a widespread industry problem.
Companies also aren’t afraid to try out emerging technologies and their applications to fintech. Wave, a company that digitizes shipping and trade documents such as bills of lading using blockchain, together with Barclays executed the first blockchain trade finance transaction.
A limited domestic market hasn’t hampered the growth of Israel’s tech companies. This has even prompted ventures to look outward, targeting the more lucrative markets of the US, Europe, and Asia-Pacific for their services. Cross-border business has even become the route to success for a number of Israeli companies.
Payoneer has 12 offices worldwide handling payments in over 200 territories. Much of its growth can be credited to focusing on what other players have overlooked. Freelancers in regions such as Southeast Asia often get less when receiving money due to the higher transaction and conversion fees charged by other companies such as banks and PayPal. By offering better rates, Payoneer has become a strong alternative to these services.
Companies aren’t shy putting up a global presence. YL Ventures even put up a $75 million fund for Israeli tech companies interested in taking on the US market. Israel has nearly 100 companies listed at Nasdaq which is third only to the US and China in number.
Despite the increased competition in the fintech space, Israel ventures continue to find ways to offer unique propositions and tap into underserved verticals. The exposure of the country’s entrepreneurs to culture of innovation and the demands of military service translates well to business pursuits. Add this to Israeli’s financial savvy and gumption and it’s not hard to see why ventures are poised for success in such segments. This convergence of factors allows Israel to be the promised land of fintech.