OpinionThere’s a silver lining to Israel's fintech funding slowdown
There’s a silver lining to Israel's fintech funding slowdown
“Ultimately, in the face of immense challenges, 2023 proved to be a year where Israeli fintechs showcased their resilience and resourcefulness,” writes Hadar Siterman Norris of Team8
Having spent a decade working in fintech at Mastercard in the U.S. and Europe and now leading early-stage investments in Israel’s dynamic fintech landscape, I’ve had the opportunity to observe the industry’s remarkable growth firsthand.
By now, we all know 2023 has been a challenging year for tech investments due to the global macroeconomic decline and the ongoing local geopolitical tensions. In fintech, this meant that the hype that characterized 2021 and 2022 has subsided. Global venture capital fintech investments plunged by 49% in the first half of 2023. Fintech funding in Israel reflected an even steeper decline, dropping from $6.8 billion In 2021 to $1.5 billion in 2023, according to an IVC report. While the decline is significant, it represents a return to “pre bubble” levels. Nevertheless, I am optimistic that challenges will translate into opportunities in 2024 and beyond.
The slowdown has catalyzed a coming-of-age moment that holds the seeds of a bright and promising future. Fintech companies are developing and internalizing lessons learned from the past few years, paving the way for a more mature ecosystem that prioritizes product-market fit and translating that into efficient, scalable sales.
The investors in this space have also matured. The days of generalist investors making speculative bets on the latest fintech trends have ended, creating an opportunity for a renewed emphasis on specialization and deep domain expertise. While disruptive initially due to less availability of funding, this shift will help foster a more robust ecosystem by weeding out the hype and nurturing businesses with a deep market understanding, industry expertise, and rock-solid fundamentals.
Most importantly, the core underlying driver of growth remains that the opportunities within fintech are massive and largely untapped. Fintech currently accounts for a mere 2% of the global financial services market. The growth potential is immense, with revenues projected to surge from $245 billion today to $1.5 trillion by 2030. Financial institutions are increasing their technology investments every year as they digitally transform. Last year, these incumbents spent over $650 million, marking a remarkable 30% increase compared to 2022.
Opportunities also extend beyond the traditional finance sector. Some of the most enticing growth prospects lie within the B2B space, where vertical Software as a Service (SaaS) companies across a broad spectrum of industries, from freight to healthcare, are incorporating fintech solutions into their offerings.
The CFO stack is another rapidly emerging area of opportunity. In recent years, there’s been a significant upsurge in fintech solutions tailored for CFOs. Companies like Tipalti, Brex, and Deel have emerged as prominent players, addressing diverse functions within finance teams. Despite traditionally lagging in tech adoption, the rise of B2B fintech solutions, mirroring the rise of B2C counterparts like PayPal and Venmo, is transforming the landscape of the CFO’s office.
As the fintech sector continues expanding, a secure and scalable infrastructure will also be required to support its sustained growth. Rising demand will drive the development of essential foundational elements, including embedded finance platforms and compliance solutions designed to navigate evolving global regulations. Companies building this infrastructure will become increasingly pivotal in facilitating the seamless operation and scalability of fintech services and offer enormous opportunities for investors.
Ultimately, in the face of immense challenges, 2023 proved to be a year where Israeli fintechs showcased their resilience and resourcefulness. On the business side, Fintech companies adjusted business models catering to real market needs, finding new ways to generate sustainable growth. On the personal side, as team members reported for duty amid the war with Hamas, startups were forced to further prioritize their business plans and focus on core strategic goals.
With positive shifts in the fintech landscape and emerging investment opportunities, my optimism remains unwavering as the sector embarks on a fresh chapter and forges the next generation of fintech titans that are more efficient, scalable, and poised to make a significant impact on the global stage.
Hadar Siterman Norris is a lead fintech investor and Partner at Team8.