Israel’s maturing fintech ecosystem may soon create global disruptors

Even with its vast local talent, it seems Israel still has many hurdles to overcome in order to become a global fintech hub. [ … ] Having that said, I don’t believe any of these obstacles will prevent Israel from generating disruptive global fintech startups that will become game-changing businesses.” I wrote that back in 2018 when I was determined to answer whether Israel had the potential to become a global fintech hub. Suffice to say, this prediction from three years ago has become a reality.

Despite the pandemic, Israeli fintech companies raised over $1.8 billion in 2019. In 2020, they are expected to have raised $1.48 billion. According to the IVC Research Center and Meitar Law Offices, Israeli fintech startups raised $1.1 billion in the first quarter of 2021. It is no surprise, then, that Israel now has over a dozen fintech unicorns in sectors like payments, insurtech, lending, banking, and more, with some of them achieving unicorn status as recently as the first quarter of 2021 — like Melio and Papaya Global, which raised $110 million and $100 million, respectively.

Over the years, I have had the good fortune to invest in a number of successful early-stage fintech businesses in the United States, Israel, and emerging markets — Alloy, Eave, MoneyLion, Migo, Unit, AcroCharge, and others. Advanced AI-based technologies, increased regulatory scrutiny, a more innovative and adaptive approach among financial institutions to building partnerships with fintech, and, of course, the COVID pandemic, which forced consumers to transact digitally, have all contributed to the major shifts and growth of fintech globally in recent years. Fintechs became vital for corporate survival because of the epidemic, and they were a major factor in the quick migration to digital payments.

So, what distinguishes Israeli-founded fintech businesses from their scaling counterparts on the other side of the Atlantic? Whether it was Hippo and Lemonade in the world of property and casualty insurance, Rapyd and Melio in the world of business-to-business payments, or Earnix and Personetics in the world of banking data and analytics, Israeli founders have brought a unique perspective and understanding of where the gaps exist within their respective focus industries.

This is even more compelling given that many of these Israeli founders did not grow up in the financial services industry, but rather identified gaps that built their knowledge and validation around the industry (in some cases by hiring or partnering with industry experts and advisers during the ideation phase), and then sought to build more innovative and customer-focused solutions.

Furthermore, the technological component of the fintech industry is a big contributor. It is never enough to achieve unicorn status solely through back-end technology. The strong technological boundaries and infrastructure created from the ground up that distinguishes Israeli fintech from other ecosystems are most likely, what sets it apart from others. This, in turn, contributes to the potential to be more tailored, compliant, secure, and so on. If I were to guess where Israeli fintech businesses would become industry leaders, I would say the following.