Bank of Israel gives nod to tech moguls Nacht, Shashua for new digital bank

The approval marks the first time in 40 years a new bank will be set up in Israel; the plan is for a digital bank, without branches, that aims to compete with incumbent lenders

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

Left to right: Amnon Shashua and Marius Nacht get a letter from Bank of Israel Governor Amir Yaron and Supervisor of Banks Hedva Ber, saying they will get a license to set up a digital bank in Israel (Courtesy)
Left to right: Amnon Shashua and Marius Nacht get a letter from Bank of Israel Governor Amir Yaron and Supervisor of Banks Hedva Ber, saying they will get a license to set up a digital bank in Israel (Courtesy)

The Bank of Israel on Tuesday gave a nod of approval for the establishment of a new bank — Israel’s first in some 40 years — led by Israeli entrepreneurs Marius Nacht, the co-founder of Israel’s largest cybersecurity firm, and Amnon Shashua, of automotive chipmaker Mobileye.

Governor of the Bank of Israel Amir Yaron and Supervisor of Banks Hedva Ber informed the entrepreneurs that the review process has been completed and the central bank chief is ready to issue a banking license and control permit for the new lender.

According to the plan, the new bank will start operations in a year and a half. It will be digital, will have no branches, and will focus on banking services for households, including providing credit, receiving deposits, managing current accounts, and facilitating the buying and selling of securities.

The new bank is part of an initiative by the government and the central bank to inject added competition into the nation’s banking system, which is dominated by five banks.

Illustrative image: Israelis walk next to Bank Leumi in Jerusalem on November 16, 2014. (Yonatan Sindel/Flash90)

Nacht is the co-founder of Check Point Software Technologies, which is traded in New York at a market value of some $16.5 billion. He owns a 4% stake in the firm. Shashua is the co-founder of Mobileye, the developer of self-driving vehicle technologies that was acquired in 2017 by US tech giant Intel Corp. for a whopping $15.3 billion.

To enable the establishment of the new lender, the supervisor of banks at the Bank of Israel and the Finance Ministry worked together to ease the process of obtaining a license, the central bank said in statement. This included setting out a stable regulatory framework within which the new bank will operate, the statement said. To facilitate the process, the central bank also lowered the initial capital and capital ratio requirements needed to set up a bank.

The initial capital requirements were lowered from NIS 400 million to NIS 50 million ($14.2 million), and the new bank will need to have a Core Tier 1 capital ratio requirement of 8 percent.

The central bank also updated its banking supervision instructions so that all of the banking services can be provided digitally. The new bank will also benefit from a newly set up credit data sharing system and the chance to use the services of a centralized computing system. The supervisors at the central bank worked closely with the entrepreneurs on the plans for the bank, to ensure success, the statement said.

Obtaining the control permit and the bank’s license will enable the entrepreneurs to advance and complete the automated, operational and regulatory preparation required to begin the bank’s operations and to complete the recruitment of the management and other staff, the statement said.

The new bank will be supervised by the Bank of Israel’s supervisor of banks to ensure its stability and to safeguard its depositors’ funds, similar to the oversight of other banks in Israel. Like every other bank in Israel, the new lender will have access to all of the Bank of Israel’s monetary instruments.

In addition, the new bank will be able to maintain an account with the Bank of Israel and connect to the various payment systems, enabling it to provide all the retail services that banks provide to their customers, the statement said.

“Changing technology enables the establishment of new banking models,” central bank governor Yaron said in the statement. “The model of digital banks has begun to operate in recent years in various countries, and is now being implemented in Israel as well. I attach great importance to the introduction of new banks to the system, which is made possible thanks to significant steps taken to lower the entry barriers. Banks are important to the Israeli economy and accordingly the Bank of Israel will continue to support the stability of the banking system. I wish the entrepreneurs success in establishing the new bank, which I hope will increase competition and promote innovation in banking in Israel.”

The fact that “two leading entrepreneurs” such as Nacht and Shashua have chosen to invest their capital and time in establishing a new bank is an event that “marks change,” banking supervisor Ber said. “The Banking Supervision Department has been closely monitoring the entrepreneurs and the bank’s founding team for the past year and will continue to accompany them. Moreover, there other entrepreneurs who want to set up a bank.”

Nacht and Shashua said in a joint statement that the vision of the Bank of Israel and the Finance Ministry for the setting up of the new bank is “brave” and will lead to innovation and competition in the banking sector. “We are just at the beginning of the setting up of the bank, and there is still a long way to go,” they said in the Bank of Israel statement.

Nacht said last year that he sees innovative financial technologies as an investment opportunity, and that both the financial sector and the healthcare sector are about to witness technological changes. Nacht has also set up a healthcare fund that aims to invest in mid to late-stage life sciences companies in the field of digital health.

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