“There has been regulatory disorder for many years here, but I am very optimistic"

Israeli fintech companies may be local innovation leaders, but prefer to go directly to overseas markets in the U.S. and Europe. The reasons for this strategy include the local regulations as well as the Israeli market’s size limitations.

Speaking at Calcalist's FinTech 2021 Conference, Fundbox’s GM Israel and CTO Dror Yosef, Mesh Payments’ co-founder and CEO Oded Zehavi, and Michman Business Credit Chairman Doron Spair discussed the matter with Calcalist’s Roee Bergman.

Dror, what does Fundbox do?

Dror Yosef: "We provide the American market with access to credit for small and medium-sized businesses. We provide them with cash flow management tools. When they need it, they take money while managing their cash flow."

How does it work?

Dror Yosef: "Because we are a technology company, our entire product is digital. From the underwriting to the customer's platform. The customer does not have to go to a bank branch and the underwriting takes only a few minutes. In the U.S., banks mostly lend money, and we are mostly giving the cash flow management platform rather than a one-off loan."

How did your story begin?

Dror Yosef: “The romantic story is that our founder saw his mother, who owned a small business, struggling with difficulties in managing her business cash flow. The company came to provide a practical solution, an opportunity to move these businesses into the 21st century. There are 20 million small businesses in the U.S. and the number of transactions there is very large. There is huge potential and a market failure."

Oded, What does Mesh Payments do?

Oded Zehavi: "Mesh Payments helps small and medium-sized businesses. There is a misconception, people think a small business is a bakery, however, in the U.S. we serve hundreds of companies and there is a large range from freelancers to very large companies. We have five publicly traded companies. We allow financiers in organizations to leave the company’s credit card. We manage the process in the organization from the stage that the employee has to request payment through to the final settlement. We manage payments, many of which relate to software services (SaaS) payments, giving reimbursements. Our product is provided for free when there is a monetization model."

If your product is given for free, how do you generate income?

Oded Zehavi: "Most of the commission from credit card transactions is paid to the bank that issues the card. In our case, we are the body that issues the credit card to companies and enjoys the commission. It encourages customers to use our system and moves customers from the systems they used in the past to ours."

Doron, what is the connection between Michman, who deals with clearing check payments, to Fintech?

Doron Sapir: "We are part of the Fin in FinTech. We bring credit skills through our professional staff. Recently the regulation has brought in more and more actors and brought order. It helped companies establish a proper regulatory infrastructure of providing credit and financial assets, appealing to the market and IPOs. The regulation has put these companies in a position to take the next leap. It is clear that the integration should be with technology companies while introducing tools that will make it possible to integrate our technological systems."

How are you different from what the banks do?

Doron Sapir: "We are not in competition with the banks. In many cases, we are a complementary product to the banks. Banks, when encountering small and medium-sized businesses, hit a certain barrier, also in terms of their conservatism. We complement them. For us, the underwriting is in the individual check. Our system has tens of thousands of checks and we build statistical models based on the rules I learned in my days as CEO of CAL. We give a quick answer on whether to accept the check: yes or no. They are based on strong models based on existing information."

Oded, why are you not active in Israel?

Oded Zehavi: "Unfortunately, it starts with the regulations. There is not much we can do, there has been a regulatory disorder here for many years that does not allow fintech companies to work in an orderly manner. Adding to it the small market, although this is also changing because in the last two years a lot of international companies came here. And also the lack of cooperation from the existing regulatory system. The combination of these three things causes a fintech business that seeks to prosper to immediately jump out of the Israeli market. I see that the motivation of regulators today is very positive and it is too early to say whether this will translate into positive actions. But I am very optimistic."

Could you help the business sector in the country?

Oded Zehavi: "Regulation may be resolved, but the size of the market is more difficult to resolve. Our product is not a simple one. Maybe through collaborations it will be possible. When it is easy to move a product from one country to another, then it makes sense (to develop in Israel, H.S.) a more local product. But success in Israel does not really give an advantage and it is better to start in a country that is significant enough."

What kind of information do you collect?

Dror Yosef: "The digital revolution has made a lot of data accessible. There are three types of data: Data found in networks or through companies that sell data on consumers or businesses. There is the information the customer provides during the registration process, for example giving access to a receipt. And the information you produce about your customer's conduct, regarding the way he conducts himself with money. It is data that costs a lot to produce and varies greatly from country to country."

In what areas are you looking for collaborations?

Doron Sapir: "We are looking for cooperation in models of digital underwriting and also in improving procedures in the world of credit. We are also looking at crypto-based credit. I believe that checks are here to stay. The check is a product I learned about recently. It is important for companies, it may not be on paper but a digital check. But definitely, it is a product that Israeli banking will stick with. And in general, tools in the world of factoring. I believe that the world of non-bank credit in Israel is in its infancy. Fintech companies can help it move forward."