Investments in Israeli financial technology (fintech) startups in 2019 totaled $1.8 billion, an all-time record, according to a report by Start-Up Nation Central (SNC) which tracks the tech industry in Israel. The figure represents a 107 percent increase over 2018 and an increase of 300% over the past five years.
Israel ranks fifth in global fintech investments after China, the US, UK, and India, with investment in Israeli fintech accounting for 5.1% of the global investments in this field, the report said. This makes Israel a “fintech superpower,” SNC said.
Of the fintech capital rounds raised in 2019, six were in excess of $100 million. These included Lemonade, which raised $300 million last year, and Next Insurance, which raised $250 million. This compares to just one so-called “mega-round” in 2018.
The median value of all the capital rounds in 2019 was $10 million.
An analysis of the capital sources shows that foreign investors accounted for 69% of all fintech funding rounds in 2019, compared with 57% in 2018. Foreign investors usually invest in the more advanced financing rounds, typically in growth-stage companies. In addition, Israeli fintech attracted a higher number of strategic investors, who, in addition to capital, bring knowledge, experience, and potential customers.
“The growing investment in the fintech industry is not a passing trend,” said Yair Fonarov, author of the report. He added there are over 500 fintech companies operating in Israel today.
The report segments the Israeli fintech industry into seven subsectors: trading and investing startups — 130 companies, with $95 million in total investment in 2019; payments and money transfer startups (119 companies, $314 million); enterprise solutions (95 companies, $131 million); anti-fraud, risk and compliance (74 companies, $327 million); insurtech (62 companies, $582 million in total investment); lending and financing (53 companies, $319 million); and personal financial management (33 companies, $11 million in total investment).
Coronavirus ‘turns tables’
Even so, said Fonarov, the COVID-19 outbreak “has turned the tables on everyone,” and the fintech industry is “not immune to the shock experienced by other technology sectors in Israel.”
“Foreign investors may want to maintain their distance now, while the local ones will focus on protecting their portfolio companies. The younger companies will therefore have a harder time finding investors,” Fonarov said.
The coronavirus pandemic and the economic crisis it has wrought have also “significantly afflicted” Israel’s thriving tech industry, the nation’s Innovation Authority said in April. The tech sector is expected to see a drop of some 25% in private capital investments and about a quarter of the total revenues, the authority said.
Even so, “the pandemic will boost the usage and adoption of new technologies,” Fonarov said. “In the long term, the companies that survive the current crisis will see more business opportunities, particularly in the fields of digital payments, fraud prevention, and security.”
The use of artificial intelligence technologies for fintech has grown by 86% over the past year, with investments in startups in this intersection soaring to $781 million in 2019. That year, Israel boasted as many as 1,500 AI-based companies in all sectors, of which some 200 are in fintech, the report said.