Why Fintech is Flourishing in Israel

Israel’s Fintech industry is positively blooming. Self-sustainable, strong in innovation and technological capabilities along with a thriving ecosystem, you might think that this is the natural progression of the start-up nation; the maturation of the cybersecurity industry, the phenomenal history-altering strides being taken in the AgriFoodtech arena and the evolution of the Israeli Digital Health space as it transforms from a technology hub into an experienced and rich ecosystem.

However, given the backdrop against which Israeli Fintech positions itself, the case could well be the complete opposite. Given Israel’s small market size and extremely concentrated financial industry, it could also be the case that Fintech would not necessarily always flourish in the Holy Land.

Gladly, this is not so. The big picture in which Israeli Fintech finds itself is a particularly unusual one. In Israel, there are five banks and insurance companies which control more than 90% of the market, meaning that competition worries these incumbents far less, which could imply that Fintech start-ups have their work cut out for them. Yet, in Israel, as it so often happens, what would be apparent and a natural progression anywhere else, manifests itself in a completely opposite manner. The disruptive nature of technologies being developed within the Israeli Fintech ecosystem are managing to succeed despite the odds, as a result of contributory factors that are home-grown, and totally unique.

The Big Seven

Israel can accurately be characterized as a hotbed of innovation activity and the agricultural reference is not an intentional plug for Israeli Agritech. Several factors, many of which are uniquely Israeli, have together significantly contributed to making Israeli Fintech into a self-sustainable ecosystem, including the IDF, experienced Israeli entrepreneurs, governmental support, involvement of financial institutions (both local and foreign), a strong investor base and a dynamic community.

Military Precision

Israel’s military capabilities are world renowned. While a strong and effective military may not scream “innovation” at first glance, the fact is that much of the basis for Israel’s innovation ecosystem comes from there. While busy producing cutting-edge technologies for its own needs, the IDF trains many young individuals in how to develop these technologies, providing them with a substantial range of knowledge, skills and experience. As a result, upon their release, the go-to professional move for these veterans is to seek employment in companies which utilize non-military applications of the technologies in which they have this broad expertise. Start-ups that incorporate image and video processing, big data, algorithms, real-time analytics and biometrics have all benefitted greatly from this – and all the aforementioned activities have become essential to Fintech solutions.

Entrepreneurial Spirit

The first people to realize the knock-on effect of the military-inspired technology boom were also the ones to create the earliest Israeli Fintech success stories. These achievements are pretty incredible, especially given the youth of this stage of the industry. One example is Fundtech, which was bought by GTCR for $390 million in 2011 and then subsequently bought by D+H for $1.25 billion later in 2015. Others include SuperDerivatives, acquired by Intercontinental Exchange for $350 million in 2013, Actimize bought by NICE for $280 million in 2007 and Fraud Sciences, which was bought by the online payments system creators PayPal as early as 2008 for $169 million. The early-stage entrepreneurs who spotted the inherent opportunities in Fintech inspired further entrepreneurs to grab this opportunity and move into this previously unfamiliar industry. 

Supporting the Sector Locally and From Abroad

Never one to miss an opportunity, upon recognizing the potential in Fintech in 2011, the government in Israel launched an incentive program for financial institutions to open R&D centers in Israel. This was immediately pounced upon by Citibank and Barclays, who opened local R&D centers later in the same year and over the ensuing years by more than 40 other financial institutions and corporates, all aiming to benefit from Israeli talent and gain a foothold in the local ecosystem. This increase in financial MNC presence had the knock-on effect of offering more and more workers substantial exposure to new and cutting-edge financial products, providing them with expanded skillsets and extensive technological know-how. This, together with the capability for development of disruptive technologies learned in the military, gave rise to the foundation and growth of hundreds of companies that have fused their expertise with the needs of the Finance industry.

Testing Ground

Together with innovative ideas and technological strengths, the growing Fintech industry seems to have found an excellent testing ground in Israel. While the international market is always what drives start-ups, even from early-on, due to the somewhat diminutive size of the Israeli market, the Israeli consumer’s tendency toward early adoption and the centralized structure of the Israeli Finance sector means that start-ups are able to easily test their product on a broad enough cross-section of users in an advanced market, prior to scaling abroad. In turn, local financial institutions receive a continuous stream of innovative solutions and talent to drive their own strategy.


Over the last few years, a Fintech investors community has evolved in Israel, which includes local and foreign dedicated VCs, corporate VCs and individual investors. The previous success that many of these individuals have had when investing in Fintech spurs them on to re-invest their own capital in the sector again, utilizing their experience and knowledge by helping finance emerging Fintech companies, with the aim of creating new success stories in the sector and making Fintech a self-sustainable ecosystem.

Government Support

Fintech has also sparked sufficient government interest to garner support for a number of initiatives including the Beersheva-based FinSec cybersecurity innovation lab. The FinSec lab is there to accelerate Israeli Fintech and cybersecurity start-ups, bringing together start-ups, financial institutions, regulators, technological vendors and academic institutions to develop and test new secured Fintech products.

There’s also the Fintech regulatory sandbox for start-ups, established by the Ministry of Finance and the Israeli Securities Authority, which will allow start-ups to test their technologies, services and business models on the Israeli market, with minimal legal requirements and without having to undergo a full licensing process.

On top of this, in order to further increase competitivity in the Israeli market, Bank of Israel, in partnership with the Ministry of Finance, is also establishing open banking standards that will allow Fintech companies to obtain access to bank data and thereby be able to offer services to local customers.


Israel’s technological strengths, together with so much homegrown and official support is helping the Fintech sector to grow and thrive and has created a self-sustainable and increasingly globally recognized Fintech ecosystem.

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