The evolution of the fintech sector in Israel: a market overview to 2024

Israel’s Fintech sector has remained resilient and robust, with strong signs of revenue growth and solid gross margins amid challenging times both domestically and internationally, according to a new report. After an initial boost in 2021 and subsequent collapse due to rising interest rates, the sector has seen a recovery in line with the rest of the world’s markets.

“I think fintech is one of the healthiest sectors in Israel,” said co-author of “Israeli Financial Technology Surpasses: Sector Resilience Reflects Investor Confidence, Driving a New Wave of Innovation,” Omry Ben David. As a general partner at Viola Ventures, he has more than 15 years of technology-focused experience in investment banking, startup operations and venture capital investing. “There is resilience in the initial phase: the initial phase is strong. This means there is always innovation coming in the Fintech space.”

One area that has led the financing industry early on has been RiskTech, reflecting Israel’s Cyber ​​and Risk ecosystems, as well as the evolving risk landscape as GenAI sees greater adoption. In 2023 the segment represented 23% of total collections compared to just 6% in 2022.

Total early-stage Fintech funding reached $500 million in Israel in 2023 ($1.4 billion in Fintech overall), an amount that, while considered low compared to previous years, remains in line with trends global. In total, Israel’s total early-stage funding in 2023 was approximately $3 billion, once again making the Fintech sector the second most funded sector after IT. The report confirms that Fintech accounted for 18% of all Israeli investments in 2023 (Cyber ​​claimed 26%). For the past four years it has remained in second place and its gap is narrowing after a drop in 2022.

“Everyone knows that Israel is a cyber hub, right?” added co-writer Uri Lampert, director of Viola Ventures. “Cyber ​​is very strong in Israel and I hope it will always be that way. We love cyber, we invest in cyber, and I think having cyber-like tendencies specifically says very good things about fintech.

Major fintech companies making waves on the scene last year include Next and eToro, which raised $265 million and $250 million respectively and accounted for 61% of full-year funding. While early stage companies have had their time to shine with funding rounds, it has been these larger companies that have managed to take advantage of the market by opting to complete acquisitions in the sector. Israeli companies have purchased foreign companies, such as Rapyd’s purchase of Netherlands-based PayU for $610 million or Iceland-based Valitor, which was purchased for $100 million. There was only one “blue and white” deal recorded when Israel-based Tipalti bought local Approve.com for a lower $40 million.

“The acquisitions made in 2023 highlight a critical aspect of the Israeli FinTech ecosystem: its willingness to innovate and expand even during challenging times. This willingness and ability to invest in growth reflects the overall health of the industry and position for continued success,” the report states.

However, it is important to note that IPOs of Israeli companies decreased “significantly” from 78 in 2021 to just three in 2023, mirroring American trends (from 454 to 153). In the Fintech market, there was one IPO in 2022 and none in 2023. Israeli Fintech mergers and acquisitions “almost disappeared” in 2023, going from 10 deals worth $1.1 billion in 2022 to just two deals worth $4 million the following year.

Despite this, the authors remain optimistic about the future of Fintech: not just about the expected lowering of global interest rates and more positive public markets, or about the impending artificial intelligence revolution, but about Israeli resilience. “I think with most of the reservists returning to the offices and being able to manage some sort of war life or war work balance, you see the resilience of Israeli companies that are managing this with excellence,” Ben concluded Davide.

Viola is one of Israel’s leading technology investment groups with over $5 billion in assets under management. It was founded in 2000 and has backed some of Israel’s leading Fintech companies such as Pagaya, Payoneer and Faye, recently voted the most promising startup of 2024 by Calcalist. It has produced an interactive map of the entire Israeli Fintech ecosystem, which can be found Here.

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