In a new Israeli television sitcom, “Honey spot-on in the middle,” an actress playing a Knesset member introduces a bill that would require every bank customer to take a financial management course on how to handle their money. The first digital bank based in Israel seeks to make this need unnecessary by thinking for its clients and managing their accounts using artificial intelligence.

The founder of the digital bank is billionaire Marius Nacht, who made his fortune in stocks and stock options he owns in Israeli tech giant Check Point. Later, Nacht took on as a partner teacher Amnon Shashua, from Hebrew University, who is a founder of autonomous vehicle company Mobileye, which developed a security camera for cars, and was sold to Intel for more than $ 15 billion.

In 2019, the Bank of Israel granted a banking license to the digital bank. In May 2020, Nacht surprised the market and announced that he would be leaving the bank, and all of his liabilities and assets were transferred to Shashua, who had invested $ 60 million in the bank until then. Today, the bank employs 140 people.

The First Digital Bank is regulated by the Bank of Israel like all other banks, and will offer all the services offered by traditional banks. It will provide the banking services that exist in the banking system today, including an individual bank account, loans, certificates of deposit, credit cards, securities, guarantees, standing orders and foreign currency. In the future, it will also be possible to take out a mortgage with the digital bank, for which it will need a separate license.

The bank signed an agreement to issue and manage its credit cards with the Isracart group last May and in December became a member of the stock exchange and will offer a platform to trade shares in Tel Aviv and on the American stock exchanges.

As part of its launch, it has opened an enrollment limited to several hundred clients, including bank employees and their families, for a pilot which will be fleshed out later this year, and open to the general public of by the end of 2021..

A statement from the bank’s CEO, Gal Bar Dea, said: “Netflix killed Blockbuster, Spotify disrupted the music industry and Tesla left Ford and Mitsubishi behind. The banking sector is one of the few sectors which has not experienced a revolution. we will offer an innovative and fair bank it will leave people worry free about money. We do not intend to take advantage of our clients’ lack of knowledge and we will do everything to ensure that they are not uncovered and understand exactly what they are paying.

However, achieving these aspirations is not easy at all.

Roy Katzir, the bank’s director of marketing, sales and business development, told Al-Monitor that it is in fact an advanced high-tech company that has received a banking license and that the bank will use. the most advanced technologies for the benefit of its customers, with great savings made possible by the fact that it will not have the expenses of maintaining physical branches and additional expenses like obsolete computer systems and expensive operating system traditional banks.

According to Katzir, artificial intelligence will be used to personalize each client’s financial policies based on their income, needs and even personality. The bank will compose investment portfolios for clients, and personalize savings, deposits or loans, and in the future, mortgages.

Shuki Oren, chairman of the company, is quoted in a Press release saying: “Our DNA is that of a high-tech company, the connection between different parties, departments and employees is continuous and transparent, and this is our business for customers, and this is our advantage over banks. traditional.

But competition for Israel’s digital bank will be stiff. Bank Leumi has developed a digital platform called Pepper, which has become popular among younger customers. Hapoalim Bank is now working to establish its own digital bank based on the Bit payment app, which it owns. Bank Discount does the same through the PayBox payment application. For digital banking to succeed in gaining public trust, recruiting new customers and being a real competition for existing traditional banks, it will have to offer unique platforms and solutions that did not exist until now in the market. banking sector.

The global experience has not been very encouraging, since in recent years no digital bank – like the British Atom and Monzo, and the German N26 – has significantly shaken the market. An important reason for this is that the banking sector is quite complicated, and above all, more regulated than other sectors. Strict regulatory requirements limit the ability and opportunity to offer changing prices in the market for service fees and account management fees, particularly discounts on interest on loans and savings leads with savings. more attractive interest rates.

The advantage of a digital bank is its slimmer spending structure compared to traditional banks, as it has no branches and employs fewer workers. However, technological infrastructure entails significant expenses and digital banking employees come from the technology sector, where salaries are relatively high.

However, in the area of ​​the capital market, there is a good chance of success, as the bank could offer significantly lower service fees than those offered by traditional banks for buying and selling stocks and managing. portfolio, an area where seasoned commercial banks charge fees with a high profit margin.

The Israeli digital bank stresses that its main novelty lies in the field of technology, artificial intelligence and innovation. This is exactly what the global tech giants love Google and Apple have done so, examining the possibilities of entering financial services while using the most advanced technologies. Traditional banks claim there is no real demand for the budget and expense management products they offer, but digital banking argues that they are offering something new and more innovative.

In any case, the Israeli banking system is changing rapidly: a credit data bank, created two years ago, allows players outside the banking system to compete for customers; the reform of open banking allows fintech companies to access banking databases; digital wallets should bring Apple and Google into the local financial market; and now digital banking. These changes, we can at least hope, will bring real competition to the Israeli banking sector, which has been controlled for decades by the same three big banks, with no real competition.