eToro has raised $162 million to date and the latest financing round was completed at a company valuation of $800 million.
In the financing round eToro was represented by the Meitar Liquornik Geva Leshem Tal law firm and China Minsheng Financial was represented by Yigal Arnon & Co.
Yoni Assia told “Globes,” “We have always seen the investment market as very localized and not advanced. Ultimately, everybody wants to make profits in the market. Our customers, unlike institutional investors, do not object to sharing their investments. Users can therefore benefit from “the wisdom of the crowd” and learn what other investors are doing.”
By Daniel Bahar
For quite a few years now, financial institutions considered fintech companies as the industry’s biggest potential disruptor, as confirmed by KMPG’s recent survey. As such, many financial institutions have been formulating their fintech strategies, opening innovation hubs and investing in fintech startups to some extent. However, collaboration levels have been limited to specific service acquisitions and initiatives and there is so far limited evidence of a significant enough change taking place in the traditional banking sector.
Being slow to embrace new technologies, highly sophisticated fintech startups have managed to flood the market, offering customers superior user experience as standard and enabling the strongest fintechs to gain significant share of the banking world’s core business. Over the past year we’ve seen a dramatic increase in the complexity of the competitive landscape both from early and later stage fintech startups. To add to this, competition has come from the new economies being created thanks to blockchain technology on the one hand, and the big tech giants strengthening their fintech capabilities on the other.
In this rapidly changing market, financial institutions are feeling the pressure and are tooling themselves up by adopting new technologies, breaking down the barriers between siloed internal systems and creating fintech strategies for adopting a more collaborative working framework with the wider industry. If they are to maintain their relevance moving forward, the banks know change needs to happen now.
In the past few years we have seen over 30 fintech unicorns and many equally significant companies start to rival the banks at their core activities including lending, investments, payments, personal finance and digital banking.
Top 5 fintech companies by area of focus:
Unburdened by outdated legacy systems and heavy operational costs, the fintechs of tomorrow benefit from having strong artificial intelligence and machine learning capabilities and are able to offer highly personalized, timely, optimally designed financial products that are often perfectly tailored to a consumer’s behaviour.
Supported by regulators trying to level the playing field and open the market up for more competition, rulings such as the PSD2 regulation in Europe allows 3rd parties (mainly fintechs) to access consumer financial data, stripping the banks from one of their most valuable assets.
The blur between pure e-commerce and fintech as the worlds of offline and online shopping start to merge is creating a totally new dynamic and threat for traditional banks. An example of this was eBay’s acquisition of PayPal back in 2015. PayPal, a fintech company now valued at $90B, alongside other payment solution providers included in the image above, retailers’ growing credit card business, consumer loans and lending solutions are becoming more deeply rooted in the overall shopping experience.
In Asia, we’re seeing e-commerce platforms expand their remit by providing full stack financial service offerings. The most significant of which is Alibaba’s Ant Financials. Founded in 2014, it’s now the world’s largest online banking platform and is planning to IPO with an estimated valuation of $100B. Pure evidence of the potential power that can be created thanks to an alliance between a fintech and an online retailer.
2017 has also been a transformative year for blockchain technology and the crypto economy. A substantial financial services ecosystem has emerged in creating a $400B plus blockchain based economy in less than a year. Given the size of this new economy and its rate of growth, the threat posed to traditional banking is very real. Consumers and businesses are steadily being offered a totally alternative economic system, that has the potential to replace infrastructures, governance mechanisms and the value distribution between parties. The potential for blockchain to truly disrupt the traditional banking system as the technology continues to mature, is not far off.
Whereas blockchain promotes a decentralised economy, on the other end of the spectrum, highly centralised economies are starting to form within the tech giants (GAFAM – Google, Amazon, Facebook, Apple & Microsoft), as they start to build up their fintech capabilities. Their increasing global dominance, reach and technical superiority gives them the potential to overshadow the traditional bank’s relationship with consumers. Built on data collected from each interaction powered by the most advanced AI and machine learning technology, they are defining the standards for customer experience and control the most pervasive consumer social channels and experiences (Siri, Alexa, Google’s personal assistant etc).
To add to this, the increasing adoption of cloud based solutions by traditional banks is leading to a growing reliance on tech giants for their cloud based services. Consequently, this has the potential to erode another valuable asset of traditional banks – their legacy systems.
So far, the GAFAM giants have only displayed subtle attempts at competing directly with traditional banking. Amazon’s growing lending business, and the other giants’ initial attempts to enter the payments and transfers environment have been small in general. But nonetheless, these moves could certainly be seen as early signs of their desire to expand by leveraging the significant power stored in their balance sheets.
The Asian fintech ecosystem serves as an example of the potential dominance major platforms can have on the financial industry. Tencent managed to reach a $500B market cap, now offering full stack financial offering thanks to its WeChat payment solution. Together with Ant Financial, Tencent has managed to capture over 50% of the fintech market in Asia.
Competitive landscape of the financial industry:
It is clear that with so many competitive pressures placed on the traditional banking sector coming from multiple directions, banks should be rethinking their objective of trying to control the entire value chain. Instead, they have a huge opportunity to focus on leveraging what they have and working in a more collaborate way with the wider ecosystem.
The number one opportunity and also challenge, is for banks to leverage their consumer data and become powerful data driven organizations. Their ability to harness AI and and machine learning capabilities is critical to their survival. The challenge comes in organising existing data systems that often sit across multiple, siloed platforms where data is inhomogeneous and the appetite for change is often not aligned internally.
Nevertheless, instead of passing on financial data to industry newcomers, they should instead use their extensive financial product portfolio and position of trust, to offer their consumers enhanced financial products via GAFAM channels by working in collaboration with tech giants. For example, imagine a time when consumers could openly interact with their e.g eToro account, or apply for a loan from Kabbage via their own bank thanks to a voice activated personal assistant of choice.
In addition, banks should be embracing blockchain technology both for internal system means, as well as for building stronger bridges in order to further strengthen their position of trust.
Despite many weaknesses, the current banking system still remains the backbone of the financial industry. Although outdated, their legacy systems are proven to be the most reliable at scale. They also benefit from having a significant equity cushion and are the ones to carry the inherent risk in every financial transaction. To add to this, their systems and equity position are highly supervised by regulators and government insurance schemes, which over time have given the banks their most valuable asset, trust. Trust, however, can erode quickly if the banking system is to continue to lag behind in terms of customer experience and poor financial product offering.
We have a significant way to go before we see a real transformation of the banking industry but it really is now or never if the banks are to preserve their position of strength. To accelerate this transformation, we’ve seen many interesting investment opportunities in Israeli startups focused on helping the traditional banking system to advance. They include startups focused on advanced data analytics capabilities, more personalised customer journey and interface platforms, process automation, data governance and security solutions. All of which are powerfully trying to close the innovation gap and help build a more collaborative financial ecosystem.
BioCatch, which tracks behavior to detect online fraud, says UK bank has successfully tried its tech with clients
BioCatch, a cybersecurity company that tracks behavior to catch cyber crooks, said UK’s NatWest bank has successfully tried its technology with clients.
NatWest, one of the largest banks in the UK, has deployed BioCatch technology since the beginning of the year within its private banking arm Coutts and for some of its business customers, successfully preventing online fraud and helping to protect its 14 million customers, BioCatch said in a statement.
NatWest and BioCatch plan to pilot the technology with the bank’s personal banking customers sometime in 2017.
BioCatch’s system captures more than 500 points of behavior such as hand-eye coordination, pressure, hand tremors, navigation, scrolling and other finger movements to create unique user profiles. This allows BioCatch to distinguish the normal behavior of an authorized user from that of an unauthorized user, as well as to recognize automated BOTs, RATS, malware and other malicious account takeover attacks, where the victim is typically unaware that the banking session has been hacked…
One of our favorite startups here at Tech in Asia is TravelersBox, which is an ATM-esque contraption at airports that helps you swap all that pesky leftover foreign currency into something useful, like Paypal or iTunes credit, or vouchers for GAP or Starbucks.
The TravelersBox machine is now going after China’s hordes of globe-trotting tourists, who numbered 120 million last year. The figure will be even bigger this year.
In order to get this new audience, TravelersBox co-founder Tomer Zussman and his team have added in support for the mobile wallet created by Baidu, China’s top search engine. So people just feed their unwanted notes and coins into the machine and then they’re converted into Chinese yuan and zapped into their Baidu Wallet accounts…
iAngels named Israel’s Top Fintech Investor
Geektime has ranked iAngels top of its Fintech Investors Index for the first half of 2016, following investments such as Zooz, Simplex and TravelersBox. For the full story, click here.
With all of the talk of downturn, doom and gloom in the Silicon Valley press cycles, it’s easy to forget that venture capital deals are still getting at a pretty rapid pace.
I recently asked 25 venture capitalists and angel investors which companies they are most excited by based on their operational performance (not based on what they’ve raised to date).
Some common names showed up, and here they are:
Finrise — San Mateo-based Finrise is operating in the massive and rapidly growing fintech market with a unique angle. Finrise helps patients handle out of pocket health care costs using great software. Patients and practices are reportedly thrilled with the product and the company is growing rapidly.
From funding to savings, these brilliant companies create solutions that move people and companies forward.
1. Danish Ventures has created a fund that targets design-focused but scalable companies solving some of the world’s biggest problems.
2. Users of Qapital, a personal savings app, set spending rules for themselves. When they break those rules, money is automatically placed into savings.
3. Aspiration makes investing accessible: For $500, invest in one of its funds. Its “pay what is fair” model gives customers the option to choose zero fees.
4. Online credit marketplace Fundera helps VC-less startups snag small investments from trusted enders. It takes a 1 to 3 percent fee from lenders (rather than tax borrowers) and has helped secure $140 million for more than 2,500 businesses.
5. Earnest helps refinance those dreaded student loans by using career and financial histories to determine a borrower’s ability to pay, and saves borrowers an average of $18,000 over 10 years.
6. Microfinance startup First Access uses prepaid mobile-phone payment histories to quickly and affordably predict credit risk for borrowers in developing markets.
7. iAngels, an Israel-based equity crowdfunding platform, helps international private investors access early-stage opportunities alongside Israel’s leading angels.
8. Painless1099 helps freelancers save for tax season, automatically putting away the proper amount before payments route to a checking account.
9. New to investing? Simply Wall St. turns stock data into simple, helpful graphics.
10. Fastacash, which recently closed a $15 million Series B round, wants to make sharing money with friends (and paying brands) as easy as texting.
The digitization of currency presents an incredible opportunity for the world’s incumbent financial institutions, from payment processing to credit and insurance products, wealth management, and currency transfer and exchange. Yet the regulatory, security, and risk management challenges faced by these institutions have paved the way for a flood of new entrants. In 2015 alone, over $19B was invested in FinTech to disrupt the $4.7T financial services industry.
A successful bank robbery used to require careful planning, orchestration, weaponry, and a bit of luck. Furthermore, the bank’s maximum loss was limited to its physical assets locked away in the vault. In 2013, Russian cybergang Cabarnak stole $1B from over 100 financial institutions, using nothing more than a few lines of malicious code. How can today’s financial institutions, encumbered with bureaucracy, legacy systems, and regulatory burdens innovate ahead of tomorrow’s financial reality?
With domain expertise ranging from enterprise software to information security, business intelligence, and the blockchain, Israel’s brightest engineers, technologists, and data scientists have started applying their knowledge to one of the hottest sectors in the world; FinTech.
Fintech, at its core, is the use of technology to eliminate market inefficiencies. To illustrate, let’s look at one of the biggest money markets in the world today; remittances. Remittances are expected to reach an estimated $610 billion in 2016, rising to $636 billion in 2017. As of the end of 2014, the global average cost of sending $200 was 8%. Let’s think about that for a second. Money is now data, sitting in the cloud, with virtually no cost to disassemble, redistribute, and reassemble. So why does sending $200 still cost $16? Due to the regulatory burdens combating money laundering and terrorism financing, international remittances sent via mobile technology accounted for less than 2% of remittance flows in 2013. But as mobile phones reach critical mass in the developing world, this will change drastically, and Israeli technology will play a role.
Flavors of Fintech
Now let’s look at an emerging $6.5b market like bitcoin, which processes $110mm in daily transactions, but with pervasive fraud, wire/bank transfers have become the incumbent use case, leading to slow, cumbersome transactions that necessitate minimum purchase requirements. Imagine a system that uses sophisticated algorithms to enable bitcoin exchanges, brokers, and eWallets to accept credit cards with no risk of fraud. Enter Israeli Fintech company Simplex, which has already processed more than $4m in bitcoin purchases via credit card.
Next we have the marketplace lending industry, with a compound annual growth rate of 123% between 2010-2014, projected to grow to $490b globally by 2020. Companies like Lending Club, Zopa, and Prosper have led the charge, but the real innovation will come from inventing new methods of credit underwriting, rather than continuing to price risk using the decades old FICO score. Look at Backed which reverse engineered Lending Club’s underwriting model to discover a huge opportunity in mitigating risks for co-signers, thus reducing APRs for borrowers, or Cinch, which evaluates small business creditworthiness based on a reputation score, rather than the traditional credit score.
Take the $45B in pocket change carried by travelers each year, and turn it into digital currency with TravelersBox. Consider the global payments market expected to grow to $2T by 2020, and Zooz, the only agnostic technology layer that connects to any payment provider and provides business intelligence to benchmark and compare provider performance for enterprises. Finally, combine the global equity markets at an astounding $69 trillion and counting, and throw in eToro, which allows users to track the financial trading activity of top performing users and automatically copy their trades.
Investment Opportunities Abound
There are more than 400 fintech startups in Israel, covering more than a dozen business models, including crowdfunding, money management, financial advisory, banking, wallets, payments, point of sale, currency exchange, virtual currencies, small business funding, retirement, insurance, lending, security, blockchain, security, and investing. And at iAngels, we are seeing them all.
As more banks and financial service companies establish accelerators, R&D centers, and incubators in Israel, the number of investment opportunities will grow in parallel. In 2015, Israeli FinTech exit activity reached $1.3B, up from $700m in 2014, while 47 companies raised $241m. As your trusted partner in Israel, we continue to access and analyze Israel’s highest quality entrepreneurs, providing you with the best FinTech investment opportunities Israel has to offer. Take a deeper dive by browsing through our investment portfolio, here.
As payment solutions proliferate and calls for standardization mount, Israel-based payment platform startup Zooz said it has closed a $24 million led by Target Global Ventures, to expand globally and bolster its products and services.
Zooz’s series C round more than doubles the total amount invested in the company to $40.5 million, raised in four rounds. The latest round included Fang Fund, iAngels, Kreos Capital and existing investors Blumberg Capital, lool ventures, Rhodium, Claltech (Access Industries’ Israeli tech vehicle), XSeed Capital, CampOne Ventures and angel investor Eilon Tirosh.
“We are opening sales and tech support offices in Berlin and San Francisco. We are also you going to invest more in business intelligence that relate to payments and better optimization of data. We are also looking to go from 80 to 120 employees in a year’s time. Sales and tech support in both cities,” said Ronen Morecki, co-founder and CTO of Zooz.
Primarily targeting developers for both mobile and desktop, Zooz provides a payments platform designed to help merchants reduce the rate of international cards being rejected.
“We know to route to the right payment processor, increasing the chances of the card being accepted.”
Zooz wants to be in Germany for the country’s massive growth potential. The company is seeking new retailers and Europe’s largest economy is fertile ground for expansion.
According to ATKearny’s Global Retail Index, Germany is the second largest online market in Europe with almost triple the UK’s current growth potential.
The same report predicts that European online retail sales will reach 234€ billion by 2018 and almost half of all online retail sales across the EU will be from online purchases made using a smartphone or tablet by 2018.
“We believe that the German market is highly advanced in eCommerce and many other retailers in Europe are interested in the German market. So it makes sense for us to follow their lead, said Morecki.
Europe doing the right thing
While Zooz is not directly competing with banks, it is banking on the success of deregulation and the expansion of unified standards globally. In fact, the company’s expansion into Europe plays out against a backdrop of the EU’s planned revised Payment Services Directive (PD2), which is intended to open up the market to new players.
“PSD2 will fundamentally change the game for consumers, banks and third party providers by opening up the market in the same way that the app stores did for mobile phones. With PSD2, third party providers can develop new services on top of existing bank infrastructure that never would have been developed otherwise,” said Erik Engellau-Nilsson, Vice President at Klarna.
According to Uri Rivner from BioCatch, a provider of behavioral authentication, one of the points the directive addresses is electronic payment security in the EU, making online payments safer and more secure.
Payment service providers will be liable for any fraud related issue and will have to be accredited on a yearly basis. Securing the payment ecosystem means a relatively fast, friction-free and unified solution for all.
“The European Commission understands that new payment features are added – purchasing from a new mobile device, first-time customer, applying for a new account – features that up till recently were not addressed, and therefore the need for a regulation is crucial,” said Rivner.
Lack of standardization
One of the biggest hurdles in mainstream adoption and growth in mobile and digital payments is lack of standardization.
There are a multitude of competing platforms, networks, service providers, point of sale technologies, and retailer strategies, including Apple Pay, Samsung Pay, PayPal, Square, Softcard, Walmart Pay, Venmo, just to name a few. Ensuring that there are compliant, secure standards across the board and that solutions are compatible across different channels – online and in-store – will be critical to mass acceptance.
“All parties involved in the payment lifecycle, from retailers to service providers to regulatory bodies, must coordinate to develop consistent and compatible solutions that keep the customer’s needs – convenience and security – at the heart of the conversation,” said Leo Loomie, VP at Digital Risk, a data analytics and compliance solutions provider to large financial institutions.
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