SIGNAL Note 24

Israel’s innovative FinTech and its applications within the BRI

Introduction

China is changing the global economic landscape in terms of sheer foreign direct investment (FDI) and infrastructural development. In the context of the Belt & Road Initiative (BRI), financial integration, unimpeded trade and policy coordination have proven essential in expanding international markets and building new systems of finance. To reach the impressive aims of the BRI various technologies, algorithms, and innovative approaches developed within the Israeli FinTech Startup community could be game changing as the PRC pursues the “Chinese Dream” towards a moderately prosperous society. As China spurs financial growth and institutional expansion within Asia and the Middle East, the implementation of Israeli originated Financial Technologies (FinTech) could dramatically impact millions of individuals and thousands of corporations in regards to increased financial accessibility and economic development.

Aiming to support the broader policy aims of the BRI, Israeli FinTech solutions could alleviate many complex financial issues already facing the massive Belt & Road projects across the globe. Giving credence to the complementarity of Israeli FinTech and Chinese policy directives, this SIGNAL note will briefly explain the diverse range of FinTech applications within the BRI. We will outline the core aims of FinTech while highlighting market ready solutions to these sectors found in the Israel’s Silicon Wadi.

Additionally, as a result of the consistent requests for more information on the topics addressed in the SIGNAL Note we will now add a section of additional resources to give readers greater depth on the assortment of technologies and innovations covered within (look for these links at the end of the Note) as well as a selection of recent SIGNAL Publications now accessible on the SIGNAL website.

What is FinTech?

According to the Wharton FinTech Club @ the University of Pennsylvania “Fin·Tech is an economic industry composed of companies that use technology to make financial systems more efficient, driven by innovation and technological advancements tied closely to Big Data, Machine Learning, Artificial Intelligence (AI).” FinTech’s potential and current market impact to banking and global lending could be seen as a parallel to what irrigation and data systems management has done to agriculture. Fintech includes; crowdfunding, algorithmic asset management, data collection, working capital management, & quantum computing (among other sectors). FinTech is quickly becoming an essential development in the digitalization and modernization of the international financial sector.

“FinTech companies are updating long-outdated processes, creating new services that would have seemed unimaginable even a decade ago, and in some cases directly challenging much larger and more established businesses for market share.”1 With new vigor, the global financial sector is heading the push of creative and cost effective FinTech solutions to the benefit of both the consumer and to the financial industry as a whole.

Background on Israel’s FinTech solutions: data driven and reaching critical mass

Leading the way in the drive to innovate the global banking sector, startups often use pioneering technology to offer existing financial services at lower costs.
Israel, with its vibrant startup scene has become a hub in the so-called ‘FinTech Revolution.” Israel presents a confluence of factors which have propelled its FinTech industry into a global leader. From government regulations and loans conducive to early stage startup development to a vibrant Venture Capital community with vast experience within the broader Israeli tech sector, and a long history of banking and financial expertise, the “Startup Nation” has created the conditions to breed innovation. In recent years this has grown across the 10+ fields encompassed under the FinTech umbrella.2

Unlike in the startup scene centered in Silicon Valley, Israeli innovation and technological development from its initial stages has been geared towards international markets as its primary means of survival. Driven by a lack of natural resources and viable regional development partners, From the outset, Israel grew to meet its domestic demands, while catering its technological advancements to broader markets and inputs to maximize efficiency and economic viability. According to Shlomo Kramer “Fintech is primarily about deep data science. An area that is particularly strong in Israel as it has strong military applications across areas such as security, computer vision, Neuro-linguistic programming and many others. It’s hard to quantify, but qualitatively fintech borrows significant talent and know-how from other, traditionally established, disciplines. The Israel Defense Force (IDF) continues to be an important source for young technical talent and advanced technologies across the board and fintech is not excluded here.”

“Israel has an innovative and well-managed financial sector. Our banks were some of the few banks in the world that were not badly damaged in the 2008 global financial crisis. Israeli finance experts often have a global set of experiences having worked both in New York, Europe, and now increasingly in Asia. Therefore, it is not surprising that with this financial background and the entrepreneurial spirit of Startup Nation that Israel will develop a robust fintech sector,” said Jon Medved, the founder and CEO of OurCrowd,”3

Examples of Israeli FinTech impacting global markets:

David Sosna and David Govrin

  • founded Actimize, the leading worldwide provider of financial crime, risk and compliance solutions which was acquired in 2007 by NICE Systems.
  • founded Personetics an online personalized guidance solutions to the consumer banking industry

Yuval Tal

  • founded Borderfree a global e-commerce solutions that went public on the NASDAQ and was recently acquired by Pitney Bowes
  • founded Payoneer a cross-border e-Commerce payments platform

Illit Geller

  • founded TradAir a front office optimization solutions for financial institutions.
  • Reuven Ben Menachem

  • founded FundTech which went public and was recently acquired by D+H for $1.2B4
  • Leading Israeli FinTech Startups

    To better understand the expansive range of applications encompassed by FinTech, the following section will highlight a few innovative Israeli FinTech Startups which are currently influencing global financial technology trends with market ready solutions.

    Tiidan
    Working in the intersection of payment processing and international credit transfer, Tiidan’s technology has clear cut applications within the BRI in the management and import of goods along the maritime Silk Road. In seamlessly creating an interface between importers and suppliers to transfer funds safely, Tiidan minimizes suppliers and importers exposure to risk “through advanced payment or open account payment methods.” Tiidan has developed proprietary technology aimed at facilitating the rapid execution of international trade transactions at low price point.

    In the complex field of digital banking and fund transfer, Tiidan has created a platform to “balance risk between importers and exporters, similar to a letter of credit but does so online, providing immediate, and automatic results.” With the massive development projects associated with the BRI coming to fruition, the market ready solutions of Israel based Tiidan could help significantly decrease investment risk and increase overall financial security through technology already developed specifically for Chinese markets.

    ZotaPay
    ZotaPay provides efficient and simple online payment processing solutions which include credit/debit cards and local payment methods. The synergy between ZotaPay’s highly advanced technology and its customized payment system enable merchants a regimented payment funnel for customers globally. The technology allows customers to process and monitor transactions in real time. With the vast array of projects, contractors and sheer multitude of total transactions part and parcel to the BRI, ZotaPay’s innovative approaches to payment solutions could ease risk and speed up the time table of payment processing between merchants and consumers across the Belt & Road. It offers a consumer-friendly solution that can contribute to customer trust.

    In an increasingly interconnected global economy, ZotaPay’s creative and cost effective processes offer payment gateways and support global processing solutions which are already connected to more than 300 financial establishments worldwide.

    The BRI aims explicitly to foster unimpeded trade and financial connectivity. In response to these demands the technological advancements and systems based solutions of Israeli FinTech could significantly impact global Chinese investment, while shifting the face of traditional banking institutions.

    Samurai
    In a shift from payment transfer to Big Data analytics based FinTech, Israeli based startup “Samurai” provides a comprehensive systems platform which “executes back testing algorithms on big data infrastructures to spot market anomalies and market opportunities in real time” to aid in making investment decisions. Samurai combines data driven risk assessments with the breadth of financial data created in every digital transaction. The company “cuts through the clutter of information by connecting past statistics and accuracy rates to current events. By separating the wheat from the chaff, it provides financial professionals with only relevant data points for the decision-making process.”

    In terms of the BRI, Samurai’s algorithm based technology could help detect fraud and financial irregularities. This would increase security for the users while decreasing investment risk. Through the integration of Samurai or other Israeli FinTech solutions to the global banking sector, China and the BRI stand to enhance best practices based on experience and innovative thinking only found in Israel.

    How is this Relevant to China?

    The ability to integrate cutting edge FinTech would provide an edge to China’s financial sector, offering greater awareness and increased market flexibility for Chinese investors. This resource will be of growing value to China as it expands its reach further into global markets. According to Brookings “Investors are pouring money into FinTech startups, with almost $14 billion invested over the past 12 months, a 45 percent increase in funding since last year. They are investing because they believe it will transform the world.” With FinTech increasingly becoming a quintessential aspect of modernization and specialization of the global banking sector, increased ties with Israeli FinTech startups could provide Chinese investors a leg up in mitigating investment risk, while reshaping outdated and inefficient financial institutions.

    In under-utilized markets across Southeast Asia, access to digital banking and lending can jumpstart economic development across the maritime Silk Road. Chinese funds such as the Asian Development Bank, AIIB, and the Silk Road Fund could connect motivated local partners with capital at lower interest rates. This, in turn, could spark economic growth from both top down and bottom up models. Through the implementation of a combination of Israeli FinTech solutions, Chinese partners can facilitate increased economic development, creating win-win cooperation for Israel, China and the world.

    How does this Impact Sino-Israel Relations?

    China’s influence in the global financial order is increasing through the creation of new multilateral development institutions. Furthermore, China is the world’s largest exporter with US$2.119 trillion worth of products around the globe in 2016 roughly 13.1% of overall global exports in 2015. These successes demand the Middle Kingdom take greater responsibility for broad-based financial security and transparency. One way to accomplish this would be to invest in cutting edge FinTech innovations to mitigate investment risk while modernizing the aging and inefficient banking institutions essential to global development. For Israel, China’s economic rise presents the opportunity to apply its creative thinking and technological driven solutions to issues on a scale unreachable in the Jewish State. Through the conduit of the BRI, Israeli FinTech pioneers can expand ties to Chinese partners, transforming crowdfunding, algorithmic asset management, data collection, working capital management, & quantum computing in 60+ nations across the Belt & Road.

    In our previous SIGNAL Note, # 23, we touched upon the recent trip of Israeli PM Binyamin Netanyahu to Beijing which culminated in the Sino-Israel Comprehensive Innovation Partnership. As a direct result of these expanded Sino-Israel ties, the ability for Israeli FinTech startups to penetrate Chinese markets grows by the day. For Chinese investors and the projects across the BRI, the warming ties between Beijing and Jerusalem could be a signal of the prospects of cooperation across the financial sector, with particular focus on the innovative technologies and approaches generated by the Israeli tech Hub.

    Additional Resources related to Note 24:

    https://www.brookings.edu/opinions/the-coming-fintech-revolution/
    https://www.israel21c.org/18-israeli-firms-rocking-financial-technology/
    http://www.globes.co.il/en/article-9-israeli-fintech-cos-make-kpmg-top-100-1001157610
    https://techcrunch.com/2015/12/19/israels-flourishing-fintech-has-many-fathers/
    https://www.zotapay.com
    http://www.samurai.finance
    https://tiidan.com/

    Recent SIGNAL Publications:

    Israel & The Belt & Road Initiative Blue Book Essay 2016
    SIGNAL Note 23: Prime Minister Benjamin Netanyahu visits china, marking 25 years of formal relations

    1. http://blogs.timesofisrael.com/4-israeli-fintech-companies-you-should-know-about/
    2. Graph from http://www.viola-notes.com/how-israel-came-to-be-at-the-forefront-of-fintech-innovation/
    3. https://techcrunch.com/2015/12/19/israels-flourishing-fintech-has-many-fathers/
    4. http://www.viola-notes.com/how-israel-came-to-be-at-the-forefront-of-fintech-innovation/
    Published: 07-05-2017