The finance technology (FinTech) industry has become one of the fastest growing high-tech sectors in recent years. Globally, FinTech investments increased from $1.8 billion in 2010 to $19 billion in 2015. If you’re looking to put your money in a future Unicorn, FinTech is the place to start. And if you’re looking for somewhere to do it, Israel may well be your first destination.
Israel’s startup scene in much lauded. Despite having a population of just 8.5 million people, Israel has approximately 4,800 tech companies. In the past year alone, Israeli startups have generated over $4.5 billion in funding - more than 10% of which was attributed to the growing FinTech industry. There are currently more than 500 FinTech startups based in the country, disrupting the banking and financial services industry with new and increasingly ingenious innovations.
These startups include Fundbox, which optimizes cash flow for small businesses by providing credit-on-demand for their outstanding invoices. Fundbox has raised $90 million in two rounds. International money transfer company Payoneer raised a similar amount. Another FinTech company causing excitement is GetStocks, an online social brokerage aimed at removing several barriers in stock trading. GetStocks combines social media with share trading to make it easier for people with little experience of the stock market to buy and sell shares.
There are a number of reasons for Israel’s success with FinTech. There are thousands of Israelis working in the global financial services industry, primarily on Wall Street and in London, and take the knowledge they acquire back to Israel. Israel also has a great deal of expertise in technologies borne from being a tech hub, particularly their incubators. Citi, for one, offers a Tel Aviv-based financial technology accelerator program that provides a four month mentoring course with the intention of fostering technology in the financial sector. A total of 53 startups have graduated from the accelerator, with $185 million in investments raised. One of their success stories is Sling, whose platform allows the underserved micro-merchants to accept electronic payments from any consumers using smartphones in their vicinity.
Perhaps the most important incubator is, however, the Israel Defence Force and ‘Unit 8200’. The Israel Defence Force has produced a number of entrepreneurs. Dan Senor and Saul Singer’s book, Start-up Nation: The Story of Israel's Economic Miracle, credit it as being one of the major factor for Israel's economic growth, arguing that as it is mandatory for most young Israelis to serve in the IDF, this gives potential entrepreneurs the chance to develop a wide array of skills and contacts. It also provides experience exerting responsibility in a relatively un-hierarchical environment, in which creativity and intelligence are highly valued. It has become a popular pool for companies seeking top talent in engineering, communications and other areas of technology.
There are also a number of factors inherent to Israel that are helping to drive forward FinTech innovation. Israel small size, for one, means that any startup must immediately start thinking about global expansion out of pure necessity. Even the high number of immigrants could be considered a contributing factor. Immigrants are, by definition, risk-takers, and 90% of Jewish Israelis today are either immigrants or descendants of immigrants in the first or second generation. Immigrants are used to starting from scratch and facing adversity, and this kind of mentality translates well into building innovative startups.
FinTech is booming and Israel is set to be at the heart of it. While it is obviously going to be difficult for other countries to emulate things like its small size and high immigrant population, there are a number of other things Israel is doing that they could seek to copy. Its incubators, for one, are something that could be actively encouraged, and countries like the UK and the US with major financial centers could better utilize the expertise at their disposal to boost FinTech.