Global financial institutions and service companies are increasing their involvement in Israel’s financial technology industry, with international investors participating in 73 percent of investment deals in 2018, up from 66% in 2017, a report by Start-Up Nation Central, which tracks the Israeli tech scene, shows.
In the first six months of 2018 there was a record number of funding and investment deals: more than $400 million was raised in 45 deals, exceeding previous half-year investments by 33% and 45%, respectively.
The median deal size also almost tripled, and median late-stage deal size reached an all-time record of $30 million, the report showed.
This foreign interest has been on the rise since 2016, when foreign investors participated in 60% of Israeli fintech deals. Multinational corporations participated in 38% of investment deals during 2018, compared to 26% in 2017, the report said.
Around 16 global financial services firms, including the likes of AXA insurance, Visa, AmTrust Financial Services, Bank of Montreal, Fosun International, Munich Re, Mastercard, and BNP Paribas, have over the past 18 months either opened a new presence in Israel or diversified their existing innovation activities to include the local fintech sector, the SNC report shows.
Israel’s fintech ecosystem was home to some 475 active startups at end 2017, up from 159 in 2012, according to the report.
Startups in the payments subsector accounted for 30% of the total fintech sector funding. Trading and investing companies are also attracting more funding, reflecting the global trend of rising wealthtech solutions. Insurtech – the field that brings innovation to the insurance sector — has doubled in the number of companies since 2015, the report said.
Not only are foreign financial services setting up R&D centers in Israel, they are also involved in other activities locally, the report said. These include setting up incubators and accelerators, hiring local scouters, investing in local VCs or opening their own corporate venture capital operations, to invest in local fintech startups.
Developing alternative engagement models is important for global financial services organizations because it allows them to enjoy Israeli talent and innovation, while spending less money than R&D centers usually cost, explained May Nechushtan, SNC’s head of Fintech Sector and the report’s author, in a statement.
“Multinationals are realizing that opening a local R&D center may not be the best or only way to tap into the Israeli ecosystem. Over the last few years we have seen a growing number of alternative ways in which multinational corporations (MNCs) operate within Israel– more than 60% of MNC operations in the Israeli ecosystem represent an alternative approach,” Nechushtan said.
There are some 300 multinational R&D centers operating in Israel, the report said.