Israeli startups are incorporating artificial intelligence, analytics, and emerging technology into innovative payment systems to challenge the status quo in the financial services industry.
听After years of attracting global attention for helping financial services companies harness technology such as machine learning and big data analytics, Israel鈥檚 fintech sector made a splash in the first half of 2020 as a leading unicorn completed one of the most successful IPOs of the year in the U.S.
听Lemonade, which uses artificial intelligence to provide property and renters鈥� insurance, raised US$319 million in June and its shares have surged since the offering鈥攁 standout moment for an ecosystem of some 500 startups ranging from fledgling ventures to unicorns.
听Venture investment in the sector has jumped over the last three years. In 2019, Israeli fintech firms raised $1.7 billion in venture funding, more than twice the amount the previous year, and triple the figure for 2016, according to the Israel Venture Capital Research Center, which tracks venture investment.
The pandemic has not scared off venture investors globally, though it has dampened appetites compared to previous years. The same trend is being felt in the Israeli fintech sector. According to Start-Up Nation Central, another organization which tracts investment in Israeli technology, Israeli fintech companies have attracted some $700 million in investment in 2020. That pace is slower than that off 2019.
听The startups run the breadth of the fintech category, from payments and loans, to accounting and antifraud, to insurance tech and asset management.
The strength is all the more notable given the relative lack of competition in Israel鈥檚 domestic banking sector, the fact that Israel isn鈥檛 a center of finance, and that the country鈥檚 capital markets are small.
Tomer Michaeli鈥攇eneral partner at Viola FinTech, part of Viola Group, which manages several Israel-based venture capital funds鈥攕uggested the country already has a fintech 鈥渓egacy.鈥� He explained that veterans from an older generation of Israeli fintech companies, many of them acquired by financial multinationals, have used their knowhow to found their own startups.听听
Other skills come from professionals who have gone abroad to work at multinational institutions in financial capitals in the U.S., Europe and Asia, he said. With an understanding of what financial products and tools those large institutions might need, those alumni have struck out with their own ventures.
鈥淵ou have a ton of people that used to work for Goldman, JP Morgan and Wells Fargo,鈥� said Michaeli. 鈥淭hey bring a lot of skills of how to work with global financial institutions.鈥�
The financial background combined with Israel鈥檚 culture of innovation and tech knowhow has prompted foreign institutions like Citibank and Barclays to set up accelerators and prowl the ecosystem for venture investment.
鈥淚f you want to interact with the global financial institutions you don鈥檛 even need to take an airplane,鈥� said Michaeli.
Below is a list of hot startups founded, funded and staffed by Israelis.
Payoneer
Year Founded: 2005
Funding: $270 million
Headquarters: New York City
CEO: Scott Galit
What they do: A digital payment platform that provides online money transfer and payment services, including cross-border transactions for third-party sellers on websites like Amazon. Payoneer also offers loans to third party sellers.听
Competitors include: PayPal, Transferwise
Customers: Amazon, Airbnb, Google.
Why they are a hot startup to watch: The company is profitable and is reportedly mulling a new funding round. In December 2019, Payoneer acquired a German payment company.听
Riskified
Year Founded: 2012
Funding: $229 million
Headquarters: Tel Aviv
CEO: Eido Gal
What they do: Riskified helps brick and mortar retailers transition to online shopping platforms. The company offers products that utilize machine learning algorithms and behavioral analytics to monitor payments and detect identity theft that leads to account takeovers.
Competitors include: Signifyd, Forter, Kount.
Customers: Macy鈥檚, Footlocker.
Why they are a hot startup to watch: Riskified raised $165 million in 2019 at a company valuation of more than $1 billion. The Israeli business newspaper Calcalist ranked Riskified the most promising Israeli startup in 2019.
Rapyd
Year Founded: 2015
Funding: $170 million
Headquarters: London
CEO: Arik Shtilman
What they do: Offers a so-called 鈥渇intech as a service鈥� app allowing customers to accept payments and transfers, as well as payment disbursement and foreign payment exchanges. The app also offers compliance, verification and anti-money laundering services.
Competitors include: Ayden, PayPal, WorldPay, Stripe.
Why they are a hot startup to watch: With a unicorn valuation, Rapyd raised $160 million in 2019 over two funding rounds. Shtilman said the company is looking for acquisition.
Fundbox
Year Founded: 2013
Funding: $433 million
Headquarters: San Francisco
CEO: Eyal Shinar
What they do: Provides payment services and loans to small- and medium-size businesses to speed B2B payments and ease cash flow. Fundbox uses machine learning and data analytics to analyze businesses鈥� creditworthiness.听
Competitors include: Brex, Square.
Why they are a hot startup to watch: In 2019, the company raised $156 in venture funding and got another $150 million in credit.听 The company counts the personal investment arm of Amazon founder Jeff Bezos as an investor.
BlueVine
Year Founded: 2013
Funding: $242 million
Headquarters: Redwood City, CA
CEO: Eyal Lifshitz
What they do: BlueVine offers financing and banking services to small- and medium-size businesses. BlueVine developed an online, cloud-based platform that offers cash advances on unpaid invoices and six to 12 month lines of credit.
Customers: 20,000 small business owners.
Competitors include: Kabbag, Mercury
Why they are a hot startup to watch: The company raised $102 million in a venture round in November. BlueVine鈥檚 investors include the venture arms of Citibank and MFUG Bank, Japan鈥檚 largest bank. The company also received $200 million in debt financing from Credit Suisse.
Pagaya Investments
Year Founded: 2016
Funding: $221 million
Headquarters: New York City
CEO: Gal Krubiner
What they do: Payaga uses artificial intelligence and big data to manage asset-backed securities in debt classes like consumer credit for financial institutions and pension funds.
Competitors include:听 dv01
Customers: Citibank, Bank Leumi, Clal Insurance
Why they are a hot startup to watch:听 Pagaya has $1.2 billion assets under management. Its investors include Harvey Golub, a former chairman and chief executive of American Express. The company said in June it had raised $102 million.
ThetaRay
Year Founded: 2013
Funding: $66.5 million
Headquarters: Hod Hasharon, Israel
CEO: Mark Gazit
What they do: The company uses big data analytics and machine learning to enable financial institutions to detect anomalies in their systems that indicate potential money laundering activity and hacking attacks through ATM and SWIFT transfer networks.
Competitors include: Feedzai, Ayasdi, Nice
Customers: Tier-1 banks in the U.S., Europe and Asia.
Why they are a hot startup to watch: ThetaRay鈥檚 investors include ABN Amro, General Electric and Israel鈥檚 Bank Hapoalim.
Lemonade
Year Founded: 2015
Funding: $799 million
Headquarters: New York
CEO: Daniel Schrieber
What they do: Lemonade uses artificial intelligence to provide property and casualty insurance. Homeowners and renters download an app, answer a few questions, and get an insurance quote.听
Competitors include: Hippo, Jetty
Customers: Property owners and renters with some 425,000 homes.
Why they are a hot startup to watch: The company鈥檚 investors include Google鈥檚 venture arm, German insurer Allianz, and Softbank. The company raised $319 million in a prominent IPO in June.
Tipalti
Year Founded: 2010
Funding: $129 million
Headquarters: San Mateo, CA
CEO: Chen Amit
What they do: Tipalti offers a cloud-based automation for companies鈥� back office accounting. It provides account payable services, money laundering prevention, tax form recording, and invoice recording.听
Competitors include: AppZen, Gusto
Customers: Twitter, Uber, Foursquare
Why they are a hot startup to watch: Tipalti raised $76 million in September, with an investment company run by former Twitter CEO Dick Costolo.
Next Insurance
Year Founded: 2016
Funding: $381 million
Headquarters: Palo Alto, CA
CEO: Guy Goldstein
What they do: Next Insurance offers general and professional liability insurance to small businesses, serving sectors that are often overlooked by larger insurers.
Competitors include:
Customers: 100,000 business owners.
Why they are a hot startup to watch: Next Insurance got a $250 million investment from Munich Re, one of the world鈥檚 largest insurers. The deal reportedly valued Next Insurance at more than $1 billion. American Express is also an investor.
Capitolis
Year Founded: 2017
Funding: $71 million
Headquarters: Tel Aviv, New York, London
CEO: Gil Mandelzis
What they do: Capitolis has developed a platform that helps streamline large, open-ended trades in equities and foreign currency. The startup helps traders cope with regulations and restrictions adopted following the global financial crisis.听
Customers: HSBC, Societe Generale, Citigroup use the platform.
Why they are a hot startup to watch: The company was co-founded by former Reuters chief Tom Glocer. Mandelzis is a serial entrepreneur who founded a fintech startup, Traiana, that was sold for $250 million within seven years. The startup raised $40 million at the end of 2019.
OpenLegacy
Year Founded: 2013
Funding: $70 million
Headquarters: Princeton, NJ (Nearly half the company鈥檚 employees work from its R&D headquarters in Petach Tikvah, Israel)
CEO: Romi Stein
What they do: The startup has a software platform that helps banks and financial institutions speed digital transformations by adding cloud-based microservices and applications to their legacy mainframe computer systems. 听
Customers: Citibank, Liberty Mutual, BNP Paribas
Why they are a hot startup to watch: The company got a $20 million investment from Japan鈥檚 SBI Holdings. Investors include the venture arms of several banks such as Commerzbank, BNP Paribas and Bank Leumi Le-Israel.
