International investors deepening engagement with Israeli fintech

The first half of 2018 has witnessed record funding and investment deals in Israeli fintech, with more than $400m. raised.

SEPTEMBER 6, 2018 14:52

Updated: SEPTEMBER 7, 2018 04:55

Fintech Start-ups: The Creative Fixers (photo credit: Courtesy) — Fintech Start-ups: The Creative Fixers

(photo credit: Courtesy)

International investors are continuing to expand their interest in Israel’s financial technology sector, a new report shows, with rising foreign investment recorded in the first six months of 2018.

According to data published by Start-Up Nation Central, an Israel-based nonprofit, international investors participated in 73% of fintech investment deals in 2018, compared to 66% in the same period last year and 60% in 2016.

Multinational corporations have also increased their participation in investment deals, featuring in 38% of agreements this year, compared to 26% in 2017.

The first half of 2018 has witnessed record funding and investment deals in Israeli fintech, with more than $400 million raised in 45 deals since the turn of the year – an increase of 33% and 45% compared to previous half-year investments.

Israel has cemented its status as a globally-recognized hub of financial innovation in recent years, with the country’s fintech sector more than tripling in size from 159 companies in 2012, to some 475 active companies in 2017.

In good news for local talent, nearly 60% of multinational corporations that have invested in the past year are seeking to engage with the domestic innovation scene, according to the report.

In recent years, multinationals have boosted their local presence in Israel, collaborating with both early and late-stage fintech start-ups.

This has continued in the past 18 months, with an estimated 16 global financial services firms establishing a local presence for the first time, or diversifying their activities within the Israeli financial sector.

Major companies investing in local talent include Deutsche Bank, Barclays and Citibank in the banking sector, AXA in the insurance sector, and PayPal, Visa and Mastercard in the payments sector.

Those establishing local research and development centers in Israel have, however, experienced varying degrees of success, encouraging multinational companies to adopt alternative approaches.

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“Multinationals are realizing that opening a local research and development center may not be the best or only way to tap into the Israeli ecosystem,” said May Nechushtan, Start-Up Nation Central’s head of its fintech sector.

“Over the last few years we have seen a growing number of alternative ways in which multinational companies operate within Israel – more than 60% of multinational operations in the Israeli ecosystem represent an alternative approach.”

Accordingly, since 2017, companies have increasingly shifted their focus to the establishment of local innovation labs, accelerators and corporate venture capitals, in addition to benefiting from local scouting.