A 101 of The Startup Nation: Israel's Startup and Fintech Landscape by Richie Santosdiaz for The FinTech Times
Editor's Choice Fintech Middle East & Africa Weekend Read

A 101 of The Startup Nation: Israel’s Startup and Fintech Landscape

Within the Middle East region, the tiny nation of Israel has built one of the world’s most advanced tech ecosystems. This has caused it to earn its reputation as a “Startup Nation” , which is also reflected in its fintech ecosystem.

The country has gone a long way and through hard work and determination built itself to be one of the world’s major tech and innovation hubs. Despite its small size of less than nine million people (8.6 million according to the United Nations), the country is a clear leader and developed economy not just in the Middle East and Africa (MEA) region but globally as a whole.

First, it has a high concentration of startups – at least 6,000. Per capita, with its population and startups would mean it has around 1,400 startups per person, which is the highest in the world. According to a report from Deloitte, 2,000 startups in Israel were founded in the past decade, with another 3,000 are small and medium-sized startup and high-tech companies, 30 are growth companies, 50 are large technology companies, and 300 are multinational corporations (MNC) research and development (R&D) centres.

The same report also highlights multinationals that have operations there through various levels of foreign direct investment (FDI): Google, Microsoft, Motorola, Facebook, Siemens, Toshiba, Philips, IBM, GE, HP, Intel, Berkshire-Hathaway, J&J, Cisco and Apple – to name a few; the ladder having three R&D centres. In fact, speaking of R&D, the country has double the average of Organisation for Economic Co-operation and Development (OECD) countries (second highest in the world) in terms of R&D expenditure per capita. In terms of MEA, Tel Aviv, home to most of the offices in Israel of foreign nationals can be compared to Dubai, which is home to the most number of multinationals (two-thirds of the largest 500 global companies with a MEA presence) who use the city in the United Arab Emirates (UAE) as a regional base for the Middle East and Africa region.

Tel Aviv is the largest city and commercial and financial hub of Israel, as well as home to its large cluster of startups
Tel Aviv is the largest city and commercial and financial hub of Israel, as well as home to its large cluster of startups IMAGE SOURCE GETTY

The country is known for its high educational workforce and entrepreneurship in general beyond just tech. For instance, according to the World Bank, the country had an over 60 per cent enrolment rate in higher education; the country is home to some of the world’s top universities according to the World University Ranking such as Tel Aviv University (191st) and Hebrew University of Jerusalem (201st250th). In terms of entrepreneurship, from a 2018 Global Entrepreneurship Index from the Global Entrepreneurship and Development institute, the country was the only one from MEA (16th) on the top twenty.

Another ranking by Startupblink’s 2020 Startup Ecosystem Ranking puts Israel in third place globally in terms of its startup ecosystem (behind the UK at second and the United States in first place). In fact, besides Israel, only the UAE and Turkey were the other MEA countries to rank in the top 50 (43rd and 49th respectfully).

Narrowing more towards fintech and its ecosystem, the successes of the Startup Nation does not appear to weaken. The country is home to over 750 fintech startups. The ecosystem to support startups in the country ranges from +$3 billion for funding for fintech startups, at least two fintech accelerator programmes and even a bitcoin embassy. With respect to fintechs in the country, The Fintech Times research shows it is the highest in the MEA region. It has its strong ecosystem as well, as much compliments its tech ecosystem. However, the country has various aspects generally of support – even with the venture capital (VC) space, catalysts and other support mechanisms.

One example is Team8 Fintech, a fintech practice focused on founding and scaling transformative fintech companies from scratch. Another example is Fintech-Aviv, founded in 2014, is according to its website the largest fintech community in the country with over 30,000 members.  In terms of wider tech that includes the Start-Up Nation Central, an independent non-profit that builds bridges to Israeli innovation.

The country has produced several prominent unicorns both in the fintech space and in tech in general. Just last year there were fifteen Israeli-founded companies that joined the unicorn club with respect to tech. With respect to fintech, some of the most famous unicorns that are Israeli/Israeli founded are eToro, Lemonade, Rapyd and Payoneer, which the ladder is planning to go public and be listed on the Nasdaq Stock Exchange in New York City. Rapyd also made recent headlines by raising $300 million Series D financing round led by Coatue. Several new investors participated in the financing, including Spark Capital, Avid Ventures, FJ Labs, and Latitude, along with further investment from current investors General Catalyst, Oak FT, Tiger Global, Target Global, Durable Capital, Tal Capital, and Entrée Capital. In terms of wider innovation in general, Israeli unicorn inventions include world-renowned companies like WeWork, Waze, Fiverr – to name a few.

With financial services as a whole, the country is home to a large financial services industry, The Top Ten Largest Banks in Israel, including the likes of Bank Hapoalim, Bank Leumi and Mizrahi-Tefahot Bank, combined in terms of assets the top ten are at estimated at over $500 billion.

Looking at the wider fintech ecosystem, Israel is also a leader across various streams. In insurtech, the country is home to 100 companies in that field. This includes some of the world’s largest such as Next Insurance, Hippo and Lemonade as mentioned earlier.

Israel is a leader in cybersecurity and the wider fintech space globally, amongst its many accolades IMAGE SOURCE GETTY

An area where Israel is a clear leader in is cybersecurity. According to a report called Israel’s Cybersecurity Industry from Start-up Nation Central, Israeli startups received $1.19 billion (almost 20%) of global VC investments in cybersecurity and that 450 companies operate in that space. A previous article by The Fintech Times called The Cybersecurity Market in the Middle East and Africa highlighted that the country has had an industry since the 1980s, where companies began developing anti-virus software and information security. Their innovations in the space include the Israeli Ministry of Finance’s Fintech-Cyber Innovation lab Programme, the first initiative in the world that leverages governmental assets and data in order to promote Fintech and Cyber startups in an open innovation platform.

Another example is the military is a startup and accelerator, as highlighted in an article by Forbes.com. Since the country’s founding in 1948 due to political issues and other factors, the Israeli Defence Force (IDF) has had to innovate, and this is clear in the space. The article says, “With years of intelligence gathering and cybersecurity practice, the IDF’s Unit 8200 has evolved into an incubator and accelerator of Israel’s startups, in cybersecurity and other fields.”

In terms of events the country has been an active leader in promoting fintech on a global stage. For example, there is Fintech Nations, an initiative started by Nir Kouris and Jon Kingsley, together with global fintech partners, start-ups, scaleups and established companies from around the world. Fintech Nations has an up-and-coming Fintech Hackathon, which is scheduled for March 1st – 14th, 2021 virtually. In addition, there is Fintech Week Tel Aviv, which will be a four-day event held virtually that will be held from the 19th-22nd April 2021.

Fintech Nations has an up-and-coming Fintech Hackathon, which is scheduled for March 1st – 14th, 2021 virtually
Fintech Nations has an up-and-coming Fintech Hackathon, which is scheduled for March 1st – 14th, 2021 virtually

With artificial intelligence (AI). as a whole in Israel, in 2019, 42 per cent of the total sum invested in high-tech went towards AI technologies. Despite Israel’s strong tech sector such as in AI, the country has yet to adopt a national AI strategy, which many in the tech community have addressed.

Also, despite the accomplishments of the nation in the wider tech and fintech ecosystem specifically, there still are rooms for growth. For instance, the government established an intergovernmental team comprised of all financial regulators under the auspices of the Ministry of Finance as well as the Ministry of Justice by recommending a regulatory sandbox. As a whole, there appears to be regulatory and other challenges for fintech startups in the country.

The challenges appear to be moving a step forward this year. It was reported last month that the Israeli government submitted a bill to encourage the development of financial technology via bill 5721-2021 (the “Bill“). The aim of the bill is to establish an experimental two to four year regulatory programme for fintech companies in Israel. This will be a major step in helping further ease and accelerate further growth in the fintech landscape in the country.

In addition, despite it being a very developed economy, a sizeable number of its talent and innovations have gone abroad leaving the country, in particular to the United States.

Generally as a whole, the country has made headlines globally with can further accelerate its wider economy which can see benefits in the fintech and tech space. First, the country last year established ties with the UAE and Bahrain via the Abraham Accords (later with Sudan and Morocco). This had already in its short period of time various agreements and MoUs across key players in their countries – such as with the UAE’s two international financial centres – Dubai International Financial District (DIFC) and Abu Dhabi Global Market (AGDM) – and Bahrain’s Bahrain Fintech Bay. In The Fintech Time’s Fintech Middle East in 2020 and Predictions In The Region for 2021 it is projected that Israel will further increase international trade and foreign direct investment (FDI) and vice versa with their new trading partners in the Middle East region.

Generally beyond just the economy, Israel has been making headlines by being the country with the highest percentage of its population vaccinated due to COVID-19. By being able to help contain the virus, it can be a big step for the world to recover from the economic effects of the coronavirus.

Despite its small size, the successes of the Startup Nation and its economic development as a whole have shown why it is an innovator across many sectors – from agriculture to pharmaceuticals and in this case with the wider tech and fintech ecosystem.


  • Executive Economic Development Advisor (Emerging Markets) | Contributor

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