Israeli Fintech Sector Experiences 73% Decline in Funding

The Israeli fintech industry, renowned for its dynamic and innovative environment, has suffered a substantial decline in 2023. Funding fell by over 73%, intensifying worries about the impact of the global economic crisis and local unrest caused by the government’s controversial plans for judicial reform.

Significant Drop in Fundraising

According to a report from Fintech.IL, in collaboration with the IVC Research Center, fundraising has seen a considerable drop this year. Israeli fintech companies raised $2.98 billion in 2022 and a record-breaking $7.5 billion in 2021. However, in 2023, the funding has only reached $784 million, with predictions suggesting it will only increase to approximately $1 billion by the end of the year – a remarkable 66% decrease compared to 2022.

Slowdown in Deals, Exits and Mergers

The report also notes an 85% reduction in the creation of new fintech companies in Israel. In 2023, only nine new fintech start-ups were established, a significant reduction from the 61 launched in 2022 and 82 in 2021.

Transactions in the Israeli fintech sector have also dwindled, with only 44 transactions recorded this year, compared to 165 in 2022 and a peak of 203 in 2021. Exit deals, such as mergers and acquisitions, have also seen a decline in 2023. There were only five exit deals worth a total of $20 million recorded this year, a stark contrast to the 15 deals totaling $1.12 billion in 2022 and 33 deals valued at $2.67 billion in 2021.

Employment Remains Steady in Israeli Fintech

Despite the overall downturn, the fintech sector in Israel has demonstrated resilience when it comes to employment. While other tech sectors have experienced layoffs, fintech companies have continued to expand their workforce, suggesting a potential area of growth amidst a challenging hi-tech landscape.

Shmuel Ben-Tovim, director of Fintech.IL and president of the Israel Fintech Center, acknowledges that 2023 has been a disappointing year for the industry. However, he also identifies some positive trends for the coming year. He highlights that Israeli regulation is promoting significant reforms in areas such as open banking and payments, creating opportunities for both established and new companies.

AI, a Potential Growth Area

Ben-Tovim also points out the prospects offered by the advancement of artificial intelligence (AI) in the financial sector. He believes AI is opening new avenues for innovative applications and will foster new and exciting players in the industry.

This sentiment is echoed by Prime Minister Benjamin Netanyahu, who recently announced his ambition to make Israel the world’s third leading country in AI. A national plan is currently being formulated, set to be revealed to the government and the public soon.

The Start-Up Nation Policy Institute (SNPI) has also highlighted the importance of a comprehensive AI plan for Israel’s hi-tech well-being. Despite the general slowdown, AI, particularly Generative AI, is attracting investments and contributing to increased valuations of both public and private companies.