Israel and Its Fintech Ecosystem 2022 by Richie Santosdiaz for The Fintech Times
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Israel and Its Fintech Ecosystem 2022

Israel remains a prominent member of the wider digital space, but with the largest concentration of start-ups per capita, what developments has the Start-up Nation made in fintech specifically?

January to November 2021 saw startups raising $25billion, bringing 33 companies into the esteemed unicorn club; according to Startup Nation Central (SNC).

This marks a year-on-year increase of 136 per cent in equity funding, while funding in Israeli start-ups is over 70 per cent more than the global average.

In terms of fintech specifically, Israeli fintechs raised $4.5billion last year, which trumps 2020’s $1.9billion and 2019’s $1.5billion. In fact, 2021 was more than the three previous years combined – according to a report by Viola Group.

The scaling ability of Israeli startups is significant. The country is home to some of the world’s famous unicorns, and one in every five is estimated to be fintech-related; including eToro, Payoneer, Lemonade, Rapyd, Pagaya, Earnix, Tipalti, Hippo, Fundbox and Melio.

Israel's fintech landscape from Viola's 2021 Report called "Is Fintech Israel's Hottest Sector?"
Israel’s fintech landscape from Viola Group’s 2021 Report called “Is Fintech Israel’s Hottest Sector?” SOURCE: VIOLA GROUP

Israel’s small market size and outgoing approach have spurred many of its start-ups into scaling and expanding quickly, with many eventually bringing new solutions to the markets of Europe and the United States.

Many look to be acquired but the Viola report highlights that last year showcased Israeli companies also being acquired to keep their lead in the global market – with 10 noticeable mergers and acquisitions last year, including Lemonade’s $500million acquisition of Metromile and Rapyd’s $100million deal with Valitor and similar $2million deal with the Hong Kong cross-border trade enabling platform Neat.

Special Purpose Acquisition Companies (SPACs) have made their way into the Israeli unicorn and fintech circle – where companies such as Payoneer, eToro, Hippo and Fundbox have and/or attempted to use this route.

In recent years, SPACs have raised record amounts in initial public offerings (IPO) and only time will tell if this will become an increasing trend not just in Israel, but globally too.

Israel country profile in The Fintech Times: Middle East and Africa 2021 Report
Israel country profile in The Fintech Times: Middle East and Africa 2021 Report by Richie Santosdiaz and The Fintech Times SOURCE: THE FINTECH TIMES

Sources vary, but according to Start-Up National Central‘s Israeli Fintech Report 2019, in terms of active fintech companies in Israel, the top five were trading and investing at 22.8 per cent, followed by payment and money transfer at 20.8 per cent and enterprise solutions at 16.3 per cent.

Fourth place was anti-fraud, risk and compliance at 13.4 per cent, and insurtech at fifth place at 11.9 per cent. Other significant subsectors were lending and finance at 8.9 per cent and personal finance management at 5.9 per cent.

When looking at funding last year, cryptocurrencies were amongst the two of the biggest segments in the Israeli fintech scene. Crypto startups saw a nine-fold increase from last year when it jumped to over $1billion (compared to $116million).

Earlier this year, due to the popularity of virtual currencies, the Bank of Israel’s Banking Supervision Department announced the publication of a draft regulation in the area of AML/CFT risk management.

It was distributed to the Advisory Council on Banking Matters for public comments. A final guideline will be formulated following a discussion of the comments of the Advisory Council on Banking Matters as well as comments from the public.

Separate yet similar, non-fungible tokens (NFTs) were announced earlier this year that they would be subject to tax in Israel by the Israel Tax Authority, as what they do with cryptocurrencies for instance already.

Tel Aviv is the commercial and financial hub of Israel
Tel Aviv is the commercial and financial hub of Israel IMAGE SOURCE GETTY

Other headlines in cryptocurrencies included Israel’s Bank Leumi becoming the first traditional bank in the country to allow customers to trade cryptocurrencies such as Bitcoin and Ethereum.

Also last March, Coinmama was bought out for assets totalling more than $35million by Wellfield Technologies from Canada. To note, it is estimated that 28 per cent of Israelis own cryptocurrencies.

In terms of digital currencies as a whole, the Bank of Israel published released the results of a lab experiment that examined user privacy and the use of smart contracts in payments. This was the Bank of Israel’s first technological experiment with a central bank digital currency (CBDC). As a whole, the idea of a ‘digital shekel’ – an Israeli digital currency – could potentially be one step closer to happening.

As Israel has been more market-led rather than legislative-led, compared to other parts of the world much of its fintech regulation is still behind. However, that looks to change.

With regards to open banking, as reported by the Times of Israel, “Starting this month this year, thanks to a new law, fintech companies will be able to get licenses allowing them to access and work with consumer data held by Israel’s big banks.

The law in question, the Financial Information Services Law of 2021, clarifies the obligations of the big banks to share consumer data with third-party applications and establishes the Israel Securities Authority (ISA) as the regulator for financial information services.”

Israel will most likely see increasing developments, innovations and other unicorns emerging from the fintech space.


  • Executive Economic Development Advisor (Emerging Markets) | Contributor

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