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How Israeli Startups Are Disrupting the Financial Sector for the Better

As the world we live in becomes more digitized and technology-centric, financial services have been forced to keep up with the rapidly changing times. Over the last decade, fintech has emerged as one of the fastest-growing sectors globally. Technologies such as artificial intelligence, machine learning and blockchain are disrupting the way financial services function and transactions are carried out. 2021 saw a record $131.5 billion in investment in fintech globally and $6.6 billion in Israel. 

 

Israel’s Fintech Ecosystem

 

Israel today is well established as a global leader in fintech. According to data from Crunchbase and TechAviv, the country has produced 12 fintech unicorns, including payments platform Rapyd, which was valued at $10 billion after a $300 million raise last year, making it Israel’s highest-valued private tech company. 

 

Investment in fintech in Israel increased by more than 6 times between 2018 and 2021. Israeli fintech saw 21 deals that were over $100 million take place in 2021, up from only 5 deals of a similar size in 2020. 

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Axis Innovation - data from Start-Up Nation Finder

2021’s two largest raises were carried out by Deel and Celsius Network. Deel , a remote worker payroll service provider, raised $425 million in October, resulting in a company valuation of $5.5 billion. Celsius Network, a crypto lending platform, raised $400 million also in October of last year.

 

Israel is home to over 500 fintech companies, 182 of which have been founded since 2018. Israeli fintech’s most prominent sectors are trading platforms (73 companies), payment processing (61 companies) and digital payments (49 companies).  

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Axis Innovation - data from Start-Up Nation Finder

Based on Axis Innovation’s research, analysis, and discussions with experts, we have some predictions for the future of Israel’s fintech ecosystem. 

 

New fintech startups will be born at a faster rate, while fewer growth companies will raise significant rounds. When analysing investment in 2021 by company stage, we found that investment in later-stage (C+) companies increased as well as investment in seed-stage startups. 

 

The number of funding rounds for both C+ stage Israeli fintech companies and seed-stage Israeli fintech startups vastly exceeded the number of rounds that were raised in 2020.  

 

This implies that Israel is continuing to produce new finTech startups even though finTech is one of Israel’s more developed sectors. 

 

Predictions for 2022

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Blockchain and Defi will find more use cases and rapid growth. In a recent article, Group 11 VC founder Dovi Frances, who was a keynote speaker at Axis Innovation’s startup networking event Axis Tel Aviv in 2016, speaks about how the “new consumer demands end-to-end automation”, and therefore every aspect of a financial transaction is expected to be digitised. 

 

Blockchain technologies will play a large role in achieving ‘end-to-end automation’ for processes such as payment processing. The use of encrypted distributed ledgers enables real-time transaction verification and makes the role of the ‘middle-man’ redundant. 

 

Numerous Israeli startups are focused on blockchain technologies and Defi - Decentralized finance solutions - with the aim of making financial processes more efficient. 

Coti, an Israeli startup founded in 2017, has developed a blockchain protocol that can be used by companies to build payment networks. We expect fintech startups that are focused on blockchain to continue to emerge and grow in 2022 as the acceptance and adoption of these technologies become more widespread.  

Summary

2021 was a record-breaking year for fintech in Israel and globally as well.  Fintech is one of Israel’s more mature sectors, however, it has the potential to grow even more and attract a great deal of investment from both foreign and domestic investors. 

By Sam Lander

Dovi Frances at Axis Tel Aviv 2016