Major European banks are benefiting from a growing stream of Israeli innovations in financial technology, one year on from the launch of an internationally-backed fintech hub based in Tel Aviv.
Called The Floor and housed in the Israeli Stock Exchange building, it is backed by Italy’s Intesa Sanpaolo. As a co-working space it is capable of hosting 10-12 local fintech businesses at any one time.
Intesa Sanpaolo has met 54 fledgling companies since The Floor opened in June 2016. Dani Schaumann, Intesa Sanpaolo’s global country adviser for Israel, says technologies developed by two of them are already running as part of the bank’s operations – one to improve in-house marketing and the other to allow more efficient optimisation of pricing.
Another two companies identified through The Floor have completed proof of concept work with Intesa Sanpaolo, four more are going through the proof of concept process and further businesses are under evaluation. Overall, says Schaumann, the organisation has begun detailed work with one-in-three of the companies it has been introduced to during the hub’s first year of operation.
“Israel is now very important for our bank,” he says. Although none of the Israeli technology adopted so far is visible to Intesa Sanpaolo customers, that will change. “We’ll certainly launch consumer services based on fintech innovations from The Floor – there are some very good opportunities here.”
“We’ll certainly launch consumer services based on fintech innovations from The Floor – there are some very good opportunities here”
Dani Schaumann, Intesa Sanpaolo’s global country adviser for Israel
Schaumann stresses that The Floor is not a fintech accelerator or incubator focused on early-stage companies. Instead, he describes it as a gateway to the Israeli fintech ecosystem; a shop window for the country’s thriving community of businesses with proven technologies that are ready to be adopted by established banks.
The aim of Intesa Sanpaolo and other founding banks is not to invest in Israeli fintechs but to identify and refine promising technologies that can help them digitise their operations more quickly. The agreements Intesa Sanpaolo signs with such suppliers are non-exclusive, leaving them free to work with others. “This is an important point because these technologies can be improved during implementation, which benefits everybody,” he explains.
Bancor, an Israeli blockchain start-up that took part in a hackathon organised at The Floor in March, went on to raise the equivalent of $153m in just three hours
As a result, the founding banks are collaborating closely to develop technologies accessed via The Floor in areas of common interest, particularly cyber-security and fraud prevention, where Israeli technology is among the best in the world.
Israel’s international strength in fintech is built on the country’s deep pool of talent produced by its university system and the Israeli army. Of the people leaving the military every year around 200 will have spent as much as a decade in the army’s technology research unit, working in fields including satellites, IT, telecoms and cyber-security. This produces a steady supply of potential tech entrepreneurs with strong engineering backgrounds and the ability to apply their expertise to practical situations. At the same time, all Israeli universities have technology transfer units to channel investment into their research innovations.
Thanks to this wealth of specialist talent, some 350 multinational companies have research and development centres in Israel.
“Finding innovation today is relatively easy; the real challenge is in the implementation” – Dani Schaumann
Aside from fraud and security, Intesa Sanpaolo has identified Artificial Intelligence as a key area of Israeli strength, particularly innovations related to predictive analytics – the ability to detect patterns in large bodies of data that can help to identify behavioural trends and predict likely outcomes. One of the aims, says Schaumann, is to enable the bank to target appropriate products and services at the right customers at moments when they are most likely to need them or to be receptive to an approach.
Schaumann says further areas of promise include technology, fintech developments for insurance and ways to bring greater efficiency to regulatory compliance.
Thanks to a wealth of specialist talent, some 350 multinational companies have research and development centres in Israel
Not surprisingly, The Floor has attracted visitors from more than 100 companies from all over the world during its first year. It also generated a buzz in the realm of crypto-currency after Bancor, an Israeli blockchain start-up that took part in a hackathon organised at The Floor in March this year, went on to set a record – since surpassed – for the largest public offering of a crypto-currency, raising the equivalent of $153m in the ether in just three hours.
Intesa Sanpaolo says it sees potential to reap far greater benefits from its involvement in The Floor, but cautions that challenges also remain. Chief among them is the work required to put promising new technologies into practice within a large organisation and ensure that they deliver on their promise. The bank’s 100-strong in-house innovation team, based in Turin, plays a critical role in smoothing this process because they understand the bank’s needs from the inside and can therefore evaluate new technologies more effectively.
“They know what they’re looking for,” says Schaumann. “That’s crucial. Thanks to our innovation team we can leverage The Floor – without them it would be a waste of time.
“Finding innovation today is relatively easy; the real challenge is in the implementation. Thanks to our innovation centre we can implement what we find.”
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