The Surprising Country Leading the Fintech Revolution
WHY YOU SHOULD CARE
Because Tel Aviv could give Silicon Valley a run for its money.
By Sushmita Pathak
The country that gave the world smart drip irrigation and the Epilady has also been an early and enthusiastic adopter of financial technology, as in mobile banking apps, digital wallets, online lending and other services that manage moola. In fact, a survey of selected industrialized countries shows that:
Israel has the highest adoption of fintech products, beating out the U.S., the U.K., France and Germany.
That’s according to Blumberg Capital report “The Ways We Pay” based on a survey conducted in partnership with Harris poll, which analyzed consumer response to fintech in five economically mature nations. As for the specifics, 50 percent of Israeli adults use mobile banking apps at least once a month. In the U.S., it was 38 percent; the U.K., 37 percent; in France, 35 percent; and in Germany, a surprisingly anemic 28 percent. Cash is still king in Germany, with 75 percent of adults using it for purchases at least once a week — more than any of the nations surveyed.
In developed nations like the U.K. and Germany, a greater chunk of the population is older and more distrustful of technology.
David Blumberg, managing partner of Blumberg Capital, a San Francisco–based venture capital firm that commissioned the survey for the report, trots out a couple of explanations as to why a tiny Middle Eastern nation is sprinting ahead of the big dogs. “Tech plays a very dominant role in the economy in Israel,” Blumberg says, likening its startup ecosystem to Silicon Valley’s.
Another reason: compulsory military service. Israel became a tech hub in part because of the unique culture of its defense forces, Blumberg says. Students are drafted into specialized classes and assigned projects that are “often life and death,” he notes, which helps recruits “develop a different, more serious perspective on life compared to American students.” By working with budgets and deadlines early on — key aspects of learning to think like an entrepreneur — students emerge from public service better equipped for the business world.
Ehud Peleg, an adjunct assistant professor of finance at the UCLA Anderson School of Management, cites another factor: youth. “Israel has a large young population,” he says, which is fertile ground for fintech. Compare that with developed nations like the U.K. and Germany, where a greater chunk of the population is older and more distrustful of technology, especially when it comes to online monetary transactions.
Peleg, who’s teaching a course on fintech at Tel Aviv University this summer, has a second explanation: oligopoly. The five largest banks in Israel control more than 90 percent of the market, and as Sandra Octaviani, research lead for fintech at the University of Utah’s Center for Innovation in Banking and Financial Services, notes, traditional banks tend to serve low-risk, highly profitable clients, which creates an opportunity for nimbler fintech firms to swoop in and serve the underserved. And since that demographic is greater in developing countries, “in general, [they] will dominate the fintech industry,” Octaviani says.
Looking ahead, what obstacles loom in fintech’s future? According to Blumberg, security, particularly in light of recent cyberattacks. “But the biggest barrier,” he says, “is a complicated, clunky user interface. We need to make fintech easier for people, more intuitive.” After all, apps are supposed to improve the quality of life. Otherwise, we’ll end up following Germany’s lead.
* Correction: The original version of this article misstated the data source.
- Sushmita Pathak, OZY Author Contact Sushmita Pathak