Clal to buy NIS 100 million stake in Israel’s 2nd digital bank

Clal Insurance Enterprises Holdings Ltd. is planning to invest NIS 100 million ($30 million) in Esh Bank Israel Ltd., giving the country’s new digital bank a valuation of NIS 1.8 billion.

In exchange for the investment, Clal Insurance will get a 4.99% stake in Esh, co-led by Nir Zuk, the American-Israeli founder of the cybersecurity firm Palo Alto Networks, Inc.

Clal Insurance, one of Israel’s largest institutional investors, will join Esh’s existing shareholders, who have so far invested over $30 million in the new venture, according to the company’s website. Upon completion of the deal, Esh will have raised over NIS 200 million in Tier 1 equity capital for the establishment of the new digital bank.

The announcement comes just two weeks after the Bank of Israel granted a conditional license for the establishment of the country’s second digital bank. The approval is the second license in three years that the central bank has approved for the establishment of a new bank, in an effort to boost competition in a highly concentrated banking sector dominated by five banks.

Esh will be digital, will have no physical branches, and will focus on banking services for households and small businesses, including providing credit, receiving and managing deposits and current accounts, and providing advanced payment services. As one of its first offerings, Esh will start with the launch of a current bank account without management fees, and in the long term, the digital bank seeks to build a range of products, including affordably priced loans.

Zuk, a former engineer at Israeli cybersecurity firm Check Point Software Technologies, set up the competing Santa Clara, California-based Palo Alto Networks in 2005. Other members of the founding group of entrepreneurs of the digital bank initiative include businessman Yuval Aloni and Kobi Malkin, a former CEO of Bank Massad, who will serve as CEO of Esh.

“We believe in the high-quality team which has experience in growing companies in the world of technology, who have joined a very high-quality group from the financial world,” said Barak Benski, senior vice president at Clal Insurance. “We think that this is a different bank in the Israeli landscape that will create value for its customers, and that the investment will generate an excess return on the alternatives for the members of Clal Insurance.”

Commenting on the deal, Aloni said that the Clal investment will allow the bank to “develop the product according to our vision and market entry.”

“The unique platform developed by the technology company Esh OS is an alternative to the outdated core system used in banks today, and enables for the first time a complete end-to-end banking services platform – all bank systems under one modular system,” stated Aloni. “This is not only about a revolutionary technological change, but also a change in perception for all of us – from bankers to customers.”

Shmuel Hauser, former head of the Israel Securities Authority, will serve as the chairman of the new digital bank and Nadine Baudot-Trajtenberg, former deputy governor of the Bank of Israel, will take up the post of deputy chairman of the board of directors.

Esh follows in the heels of the first fully digital bank, One Zero Digital Bank Ltd., set up by tech entrepreneur Amnon Shashua, the nation’s first new bank in more than 40 years. In 2021, the lender received final regulatory approval after being granted a banking license from the Bank of Israel in 2019, in a bid to inject competition into the sector. Shashua is also the founder of autonomous driving systems company Mobileye, an Intel subsidiary.