“It’s like David going up against Goliath. The top three Israeli banks will change, and we’ll be part of it”
He pledges to pay higher interest on deposits and take lower interest on loans, and is certain that banking’s big bang is right around the corner. Gal Bar Dea, the CEO of First Digital Bank, is counting on people wanting to walk around in “I Love My Bank” T-shirts
“In our set-up plan, we broke everything down into 14,000 small tasks. I really like challenges people say are impossible to achieve. On September 23, the change will begin with the Open Banking Reform and the Interbank Mobility Reform, and within 5-10 years, the industry’s three leading banks will look different.”
It’s hard not to get caught up in the energetic Scouts-style enthusiasm of Gal Bar Dea, CEO of the First Digital Bank, an ambitious enterprise owned by Amnon Shashua. Along with the enthusiasm, it is clear that Bar Dea comes from a very ambitious, achievement-oriented family. He is 41-years-old, married with two children, lives in the Tel Aviv neighborhood of Neve Tzedek, and he is the son of Strauss Group CEO Giora Bar Dea. His brother, Nir, is Deputy CEO at Bridgewater, the world’s largest hedge fund.
“I like to be in places where I can influence. We’re a family of Israeli Scout types. My father was the head of the Tel Aviv tribe and I coordinated the Kochav Yair tribe. I’m waiting until my son can become the leader of a tribe and wear the kerchief. It’s in our blood,” he says in his first interview with Calcalist.
The space housing the Digital Bank at 3 Aminadav Street in Tel Aviv is very non-hierarchical. Everyone sits in transparent rooms, or in an open space, which makes the new bank’s mission of shattering banking’s glass ceiling glaringly obvious. This is also reflected in the phrases that adorn the walls, which range from “Building a bank” all the way to a blackboard hanging on one wall where the workers are asked to write in dreams before the bank’s launch (such as “I’ll ride a unicorn,” “We’ll build everyone a smart assistant,” and “We’ll win the Eurovision again”).
“We don’t have a whole floor of executive suites. The idea is to sit together, with everything transparent and everything happening from now to now. Not presentations for two weeks from now – everything is completed in short cycles. At the speed we work at, there’s no room for hierarchies,” Bar Dea points out.
You’re speaking with the enthusiasm of an owner. Do you hold equity in the bank?
“I have options. All the workers are partners in this, everyone here has options. They work very, very hard. One of the things I like best is that the workers try to convert bonuses and salaries because they want to buy more options. They come to ask for them because they believe in this business.
“Today we have 200 workers who were recruited during the pandemic, many of them by way of the system known as ‘a friend brings a friend.’ Sometimes we have recruitment campaigns with bonuses. We have a team leader who brought in four people from his previous workplace. Every morning I and members of the management team sit with workers over coffee and check how we can help them. On Thursdays, everyone gets on Zoom and gives updates about what works and what doesn’t, what challenges them and what annoys them – it’s a culture where everyone knows everything. There are no secrets.”
It sounds like you snatched workers right from under the nose of other companies.
“Ultimately, there’s a talent war. When we started to work, I would sit in cafes and try to persuade people and recruit them for building a bank. They’d tell me, ‘Nah, let’s build a startup together.’ Have you seen the movie Ocean’s Eleven? For half a year, I marked out the best talents; in some cases, I had to speak with their spouses too. You’re asking people to leave their jobs at a time when their careers are blossoming beautifully; moving over to a new business is not an obvious step.
“There are labor laws, everything has to proceed according to a cooling-off period – but I need the best people in Israel. Establishing a bank is a formative event, and you have to have the best of the best.”
“The startup that failed? It was too early”
Bar Dea was raised in Even Yehuda, a town in central Israel. “I grew up in a competitive household, my father was the CEO of Elite, and there were a lot of aspirations to excellence.
“When I was 17, my father took me to Columbia University in New York, walked me around and told me: ‘No pressure.’ For years, I served as an officer in Unit 8200. I earned my bachelor’s degree in Business Administration and Economics at Tel Aviv University.
“Then came the shot from the gun that was laid on the table in the first act, and I went off to Columbia to get my MBA. Three days after I began my studies in August 2008, the world caved in. We stood in front of the screens and watched how workers at Lehman Brothers left the building carrying cartons and crying. Everything plunged by dozens of percentage points, and people lost trust in their banks. I sat in the lecture hall and told myself: I know what I want to do. To build a bank that’s fair and transparent, a bank that people will want to move to.”
You did that with Bink Financial Innovation, a startup that failed.
“In 2011, I came back to Israel full of faith that I would establish the first interactive bank in Israel. We built a business model of a bank that uses the license of an existing bank. We developed technology, recruited angel investors, but it was too early. The regulators weren’t willing to listen to us, and the word ‘fintech’ hardly existed. I burned through half a million dollars in two years and realized that it wasn’t going to work.
“And then I was approached by Pepper, the digital banking arm of Bank Leumi. It was a wonderful period of four years when I learned a lot, mainly that it’s impossible to disrupt from within an existing organization.”
What do you mean? That it’s impossible to establish a digital bank within a traditional bank?
“It doesn’t matter how much desire and money you have when there are supporting walls, limitations – it’s not like buying a sand-filled lot and then building a house around your customer. Tesla is a company that rose up from nothing. It’s not a matter of desire or money. To disrupt a market, to introduce competition, to generate value – history proves that only an organization that’s built from the ground up can do that. Ford Motors and Bank Leumi have money and data, plus amazing people, conference rooms – but somehow in the end they just don’t succeed. You have to build from scratch. An existing organization has a history, an organizational memory, departments that are evaluated according to differing standards. There’s a technology that needs to be beefed up and it’s not always possible to change the core systems of banks that are decades old.”
What’s bad about Pepper and similar initiatives? Today every bank has a digital interface.
“Pepper is an excellent app in Leumi’s portfolio, but at the end of the day, customers are looking for a bank that’s a complete alternative to their current bank. Customers have complex needs, beyond resolving a specific problem for someone who wants to open a youth account for a 16-year-old. You need to have a bank guarantee for apartment rentals; you need financial planning, investments, car loans. Discount Bank’s PayBox offers a terrific solution for when you need to collect money for a gift for the kindergarten teacher. Bit is excellent for paying for a Druze flatbread while you’re sightseeing. As applications in a bank’s portfolio, Pepper, Bit and PayBox provide an excellent solution for short-term needs. But financial life is more complicated than this when you have a budget to manage.”
Do you really think people will bring themselves to change their bank?
“In this realm, 2022 is going to be a year unlike any other we’ve seen until now. They’ve always talked about moving from one bank to another. Some surveys show that 40% of customers want to leave their current bank but claim they have no place to go. Next year, for the first time, they will have someplace to go. And we have the Interbank Mobility and Open Banking reforms to make it easy to do. Suddenly, there will be alternatives.”
Do young people today even have a concept of what a bank is? Loans come from the lending platform Blender, car loans come from an insurance company, installment payments from an application. Who needs a bank?
“About 50% of Israeli households are in overdraft, partly because people don’t know how to manage their money. You can be a professor, an economist, the greatest genius. But people get lost amid cash flow, current account, expenses, accounts, guarantees, checks, pension funds, investments. Their money is scattered around in a million places and no one is giving them guidance. We bring them glad tidings about prices: Today it costs NIS 2,000 a year to hold an account at Bank Hapoalim or Bank Leumi – with us, it will cost NIS 800.
“Bank Leumi’s fee chart lists 392 commission fees, and you don’t even see what you’re paying for. People don’t have the slightest idea how much their bank costs them. We’re living in a smokescreen of charges and expenses that we don’t see. Part of the banking system’s current business model is based on these knowledge gaps. You pay your bank an average of NIS 150 a month in commission fees, plus another NIS 150 in interest payments.
“We’re going to be significantly less expensive and the gap will be reflected in the price to the customer because our operating structure is much leaner. We’re going to achieve this transparently and fairly so that for the first time, you’ll know how much your bank costs you, which is great news.
“Our second good tiding relates to product. We’ll create a simple product that will show you your entire financial picture in one place, extremely plainly and cleanly. Like a Tesla dashboard – after you see it, you ask yourself how you managed to live before with a million dials and buttons. We’re going to simplify the financial world in a very straightforward way. You’ll be able to get into your account from your living room sofa.
“And our third piece of good news is that we’ll serve each customer at the level of a family office.”
Opening an account easily from your sofa can also be a problem. Are you sure I won’t discover one day that someone impersonated me and opened an account using my name?
“There’s an identification process with a high level of data security; we identify who you are by scanning your identity card and your face.”
What is the imprint of Amnon Shashua, who replaced Marius Nacht as the owner?
“The technology of artificial intelligence (AI) and machine learning will enable us to provide service at the family-office level on a large scale. We’ll incorporate automation into every activity where it can replace a person.”
Bottom line, how much will an account cost me every month?
“It costs me one-third less to operate an account than it does at Bank Hapoalim or Bank Leumi. Almost all of that will be passed on to customers.”
And the interest on deposits and loans? Is there good news here?
“Because our operations are dramatically less costly, you’ll pay a lot less to the bank. This enables me to make it worthwhile when it comes to interest on loans and also on deposits. I don’t have the burden of maintaining branches or huge core systems consisting of thousands of workers or agreements dating back to the 1940s. Interest on deposits will be much higher than the prevailing rates at banks today. It’s a bit early to say how much higher – I’m saving a few rabbits for the launch. But we’ll be dramatically cheaper on credit interest rates.”
Today 16-year-old kids open bank accounts that are free for years. Why should they come to you?
“The price element gets people inside the door, but it won’t hold them there over time. On our waiting list, people ask for tools, for help with investment planning and planning future expenses.”
How about mortgages?
“Only at a later stage, at least a year after the launch, because that’s a labor-intensive manual process that has not yet been fully digitized. Regulators are working to make it more digital. Also, a mortgage is a product that people don’t necessarily get at their own bank. Most mortgage customers shop around. But the majority are seeking a financial home and in 2022, it will be possible for the first time to move from bank to bank, thanks to two historic reforms. One is the interbank mobility reform, which will allow you to press a button and transfer your account to a different bank within days. This is dramatic.
“Add to this the Open Bank reform that the banks are trying to fight. Imagine if you were allowed to change cellphone companies but you were barred from taking your photos and WhatsApp messages with you, which is much like the current situation in banking. Open Banking is a historic reform that will allow you to transfer from bank to bank and take all your data with you.”
“People will go around in ‘I Love My Bank’ T-shirts”
You’re not worried that the big banks will crush you?
“I feel like David going up against Goliath. I think people at Hapoalim and Leumi are losing sleep because of these reforms and because they understand that 2022 will be different. They understand that a big bang is coming. They saw what happened in the cellular industry, they know that Direct Insurance shook up the insurance companies, and look at what online insurer Lemonade is doing.
“They know the lineup of Israel’s leading banks won’t remain the same. In five or ten years, the top three of Israeli banking will change. I believe we’ll be in the top three. It’s a huge promise and the burden of proof rests upon us. I have no doubt other players will emerge. May the best one win. For the first time, it’s possible to compete on value. Big campaigns are being conducted today, but customers don’t really feel any difference when it comes to a simpler product with features that other banks don’t have.”
You’re not apprehensive that with all your budget and marketing efforts the whole thing will come to nothing due to consumers’ laziness and passivity?
“They said that about the communications industry and look how many customers went over to Partner and Cellcom TV. They said that about the insurance industry and look at Direct Insurance and Libra Insurance. They say the same thing about almost every industry. I think that ultimately, Israeli consumers, like those in the United States and Norway, can and will leave when they find someplace to go, something with clear value. In the banking industry until now, there was no place to go so this wasn’t possible.”
You spoke about the economic collapse in 2008, but the negative sentiment toward banks is not connected only to that.
“When they conceal knowledge from me, that trust is broken. I’m convinced that if we do it better, people will go around in T-shirts saying ‘I Love My Bank.’ My wife says I’m on some sort of crusade, on a mission. Establishing a bank is not for the faint of heart. There’s a reason why no bank has been established here for 50 years, since the launch of the First International Bank of Israel (FIBI). I like to do things that appear to be impossible. We succeeded in gathering the best people in Israel around this dream.”
Because they hold options and are waiting for the initial public offering?
“An IPO can occur early on – or not at all. That decision rests with the shareholders. We intend to build a global business here, with unique and original technology, with lots of Amnon Shashua’s vision. We believe that our product, technology, and service will create the potential for a company that will serve tens of millions of people around the world.”
So, if the model gains traction in Israel, you’ll expand overseas?
“We’ll launch the bank in Israel at the beginning of next year and when we see that our customers are satisfied, we plan to enter additional markets.”
Will you give any advantages to the first customers who take a risk and join your bank?
“We have tens of thousands of people on our waiting list. They’ll get the special conditions for customers who come on board first. We view the first customers as a type of founders. They’re with us for the journey – we invite people on the waiting list to have a cup of coffee. Tens of thousands of people are waiting for an alternative.”
We saw that the banks are trying to remove the Open Banking reform (the release to its customers of existing data held by the bank) from the Economic Arrangements Law.
“If I were the existing banks, I’d be doing the same thing. They’re trying to delay it so it won’t be easy to change banks.”
Xfone generated an inflow of customers, but business-wise it didn’t work.
“The cellular industry underwent a process that was mainly about price and not about offering value. The Wolt food delivery service costs NIS 10-NIS 30 per delivery? There’s a new generation that values time and convenience more than money. I have workers here who order white rice from Wolt instead of making it themselves at home.”
So what’s your business model? Why will it work?
“We don’t intend to operate for free. There will be free entry for a trial period, but the full service won’t be free. We need to provide good value. When I give you something free, I need to collect money from you in ways you won’t see, such as foreign currency commissions, credit card fees or guarantees. When you’re given something for free, ask where the catch is. A price that’s reasonable, inexpensive, and fair is the right model for building a healthy business.”
How will you provide for the organization financially?
“The main expense is labor. Currently, we have 200 workers. I think Bank Hapoalim and Bank Leumi each have about 8,000-9,000 employees. Do the math. But how does a bank make money? From commissions on services. We operate like a guided missile. When people say ‘It’s great here,’ I believe them – we’ve got a superb product and good service that helps you manage things, save, and spend less time in overdraft. And we’ll have units that will take people on their shoulders to get them to transfer.”
How will you deal with the lazy and the apathetic?
“First, on September 23, the interbank mobility reform becomes law, and the effect will be dramatic. On September 24, you’ll be able to press a button and move between banks. Within seven business days, everything will be transferred: your current account, checks, credit cards, authorizations. And your data will also be transferred.
“Second, hungry players like us will help you. They’ll call you, or you’ll call and they’ll resolve your problems at the level of a family office, and help you go through the process very easily. We’re aware of the concerns and difficulties. The reform clears away 95% of the difficulties. There’s an advantage to being a hungry player – you don’t have the privilege of remaining static and saying everything will be all right.”
Regulation doesn’t move too slowly?
“The Bank of Israel’s Banking Supervision Department and the Finance Ministry are the best partners we could wish for. We submitted an application for a banking license at the beginning of 2019 and they’re running with us at record speed. They feel like they’re part of the excitement of building a new bank. Over the past year and a half, the Supervisor of Banks worked on making the regulation compatible with the needs of new banks. They didn’t hold us back – just the opposite. They played a role in the fact that at least one more bank will be established here. When we needed a protocol for transferring payments and there was none, we saw entire teams at the Bank of Israel that worked on creating a checklist.”
Will you make loans, handle investments, issue credit cards – everything?
“During the first stage, we’ll offer every product they have at Bank Hapoalim and Bank Leumi, except mortgages. There will be accounts for partners and for the self-employed, credit cards, debit cards, loans at both fixed and variable interest rates, car loans, and all sorts of deposits. The aim is to give you a full basket of products. We don’t want to be your secondary account.”
When will you attain profitability, according to the plan?
“Within a few years. The business plan calls for a healthy business, not venture capital that will lose 30 years, and also not Marius Nacht’s social bank model. He has a huge role in us being here. He brought me in, he brought in the initial funding, submitted an application for a banking license – and eventually he chose to focus on biomed.
“Today the bank bears the imprint of Amnon Shashua. He likes to solve big problems with artificial intelligence (AI), problems like the fact that 50% of Israelis are running an overdraft when some of them don’t need to be there. He consolidated a vision that solves this problem.”
Did you get any business tips from your father?
“When I was a boy and he was CEO of Elite, we were on our way to a trip in the desert. He stopped at some village, went into the grocery store, straightened up the Mekupelet chocolate logs and all the other Elite chocolates, and made sure they looked good. He knew the name of the store’s owner. I was in shock. He said to me: ‘Get to know the names and the lives of each one of your workers. A business is not a game for a team of superstars. You need everyone to be with you for long periods.”
What’s your advice for the CEO of an organization that’s part of the industry’s old world?
“That it’s important to have a mix of people with technological backgrounds. Today the Head of Marketing is tech-savvy, as is the Head of Banking and Product and the CFO. Today it’s rare to find such people in bank management, but the new bankers are tech people. The banking side of the business can be taught.”