How to Be Good at Fintech? The Case of Israel

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Reynard Walsh
7 years ago
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1 How to Be Good at Fintech? The Case of Israel Peter G. Szilagyi Associate Professor of Finance CEU Business School Central European University Judge Business School University of Cambridge Portfolio Conference, 05 April

2 Digital disruption in finance Fintech has been growing exponentially in the last few years Citi 2016: investment from $1.8bn in 2010 to $19bn in % in personal/sme finance, a profit center in global banking focus on lending, payments, savings and insurance McKinsey 2015: by 2025 fintech will threaten % of retail banking revenues 20-40% of retail banking profits

3 Fintech in Hungary FinTech Group: foundations have been laid for a fintech ecosystem 35 startups in the last three years, in prepaid banking, payments, crowdfunding, robo-advisors, blockchain etc. fintech communities for knowledge sharing e.g. BitCoin, FinTech Meetup, Facebook groups EC s PSD2 to boost fintech in personal/sme finance but underdeveloped financial culture and excessive regulation continue to inhibit fintech innovation 3

4 Israel, the fintech startup nation Israeli fintech has taken giant leaps in the last few years massive growth since the late 00s, especially since opening of Citi s fintech incubator in : 90 startups, $13m raised 2015: 430 startups, 14 R&D centers, $370m raised a byproduct of other fields Israel excels in, such as cybersecurity now among the world s biggest fintech centers largest as % of GDP, ahead of UK and US Tel Aviv GFCI debut at #32 in 2013, up to #25 in

5 Fintech in Israel 5

6 1. Mastering high-tech innovation Deep knowledge and early adoption of technologies #1 in R&D with high-tech at 20% of GDP 1.4% of labor are scientists and engineers, many high-tech trained in Unit 8200, army s elite signal intelligence corps real-time analytics, algorithmics, big data, risk management, credit scoring, anti-fraud and security Traditionally strong and fully functioning startup ecosystem world s most VC and startups per capita, with 207 incubators #2 in Deloitte/NVCA Global Venture Capital Confidence Survey 6

7 VC in Europe (EUR million, 2015) Benelux, 365 Southern Europe, 78 Iberia, 493 Eastern Europe, 38 France, 1,168 UK & Ireland, 3,572 Nordic, 1,542 Israel, 2,787 DACH, 2,074 7 Source: EVCA

8 Israeli VC by target market (top 10 verticals, 2015) 8 Source: EVCA

9 2. Ecosystem builds on a legacy of successes Knowledge of global fintech industry, requirements and practices global market targeted from outset given small internal market focus on consumer experience, marketing knowledge developed for gaming, adtech etc. successes in transaction banking (FundTech), payments (MyCheck, Tipalti, Payoneer, Retalix), P2P and SMB lending (Blender, FundBox), financial planning (BillGuard), insurance (Sapiens), equity crowdfunding (etoro, OurCrowd), fraud (Actimize), cybercrime (Check Point, Trusteer) etc. Successful firms grow and nurture entrepreneurs and executives, giving them go-to-market expertise Second-time entrepreneurs build new ventures 9

10 Israeli fintech companies 10

11 KPMG / H2 Ventures Fintech 100: 8 Israeli firms 11

12 3. Local financial institutions Israeli banks and credit card firms very open to innovation happy to test betas in data security, mobile applications etc. often have professional innovation divisions of their own several are involved with accelerators Bank Leumi joined forces with startup fund Elevator Bank Hapoalim joined Microsoft Ventures Accelerator 12

13 4. International financial institutions Many Israelis work on Wall Street and in London, both on the technological and business fronts, and then return to Israel International institutions well-aware of Israel s high-tech culture R&D centers and accelerators Barclays, Citi, The Floor Visa Europe Collab, MasterCard Start Path R&D centers by Intuit, PayPal, Santander, SunGard, RSA delegations to scout for and invest in Israeli fintech 13 foreign investors fund 75% of investments and 90% of capital sourced by local VCs PingAn has invested in Carmel, Payoneer, etoro Santander Ventures has invested in MyCheck

14 5. Israeli government Ministry of the Economy s MNC program enters partnerships to develop products and technologies 50 partners e.g. 3M, Cisco, GE, HP, IBM, Intel, Microsoft, Oracle, SAP Commonwealth Bank of Australia is first fintech partner Office of Chief Scientist Avi Hasson scouts for startups meeting MNC needs shares risk by matching funds, loan facility of $650k for $100k equity provides technological and regulatory consultation, marketing directions, etc. 14 world #1 in R&D but only 5% from government

Financing Trends in the Start-up Nation

6th Meeting of the European TTO Circle 20-21 January 2014 Financing Trends in the Start-up Nation Adv. Simon Weintraub ABOUT US Established over 55 years ago 1 of the largest and most dynamic law firms