International financial services corporations are expanding their involvement in Israel’s fintech sector, according to a new report by Israel-based non-profit Start-Up Nation Central.
There are about 480 Israeli fintech companies that are currently active, the report says, and recognized globally, with the ecosystem “playing host to an increasingly sophisticated and diverse relationship between local startups and financial services multinationals.”
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Approximately 40 multinational financial services companies are operating in Israel, according to the report, and these global corporations are investing a significant amount in Israeli fintech, with 73 percent of all venture capital-backed investment in Israel’s fintech sector since the beginning of 2018 involving foreign money. This trend has been steadily increasing since 2016, the report said, when only 60 percent of Israeli fintech deals involved foreign investors. In 2018, multinationals were involved in 38 percent of investment deals, compared to 26 percent in 2017.
The report says that Israel’s fintech sector in the first six months of 2018 showed record numbers and investments made, including more than $400 million raised in 45 deals. This exceeded previous half-year investments by 33 percent and 45 percent respectively.
Fintech subsectors like payments and trading and investing companies grew and attracted more funding, according to the study, with the payments subsector accounting for 30 percent of the total sector funding. Insurtech has also doubled in the number of companies since 2015.
At least 16 global financial service firms, including Visa, Mastercard, AmTrust, and others, have opened a center, established a presence, or diversified their existing activities with the Israeli fintech sector over the past 18 months. Corporations like Citi, Barclays, and JP Morgan have all established R&D hubs, innovation labs, accelerators, and incubators in Israel, and online payment platform PayPal and financial software company Intuit have both set up R&D activity based on their acquisitions of local Israeli startups.
Almost 60 percent of multinational corporations that invested in Israeli fintech over the past 18 months are financial institutions making a strategic investment. May Nechushtan, SNC’s head of fintech sector and the author of the report, says this is happening because the multinationals “are experiencing difficulty in recruiting top talent.”
“Multinationals are realizing that opening a local R&D center may not be the best or only way to tap into the Israeli ecosystem. Over the last few years we have seen a growing number of alternative ways in which MNCs operate within Israel– more than 60 percent of MNC operations in the Israeli ecosystem represent an alternative approach,” Nechushtan wrote.
“Some alternative models, such as innovation labs and accelerators, allow engagement with a wide range of solutions simultaneously,” she added.
Companies like AmTrust, Bank of Montreal, and Munich Re have all hired local scouters in Israel, and US financial services giant Visa, which recently announced a partnership with alternative finance startup Behalf, already has a three-person team scouting for strategic investments and partnerships with local startups.