The digital bank founded by Prof. Amnon Shashua, among the founders of the self-driving auto-tech company Mobileye, officially began operations on Sunday, promising to shake up the Israeli banking sector and inject badly needed competition.
First Digital Bank, Israel’s first new banking institution in 43 years, aims to use artificial intelligence and other technology to create a personal ambiance without the actual human contact that comes with neighborhood branches.
“Netflix killed off Blockbuster, Spotify disrupted the music industry and Tesla has left Ford and Mitsubishi in the dust. Banking is one of the few industries that hasn’t undergone a revolution. Big, long-standing names control the market with too little competition and offer exactly the same products,” said First Digital Bank’s CEO, Gal Bar-Dea. “We will be offering innovative banking, building a bank from scratch for the benefit of the public.”
Bar-Dea, who has a background in financial technology, including a stint at Bank Leumi’s Pepper digital bank, is leading a staff that today counts 140 people and is backed by $60 million in investments. First Digital Bank’s chairman is Shuki Oren, who has worked at the treasury, Bank of Israel and the banking industry.
First Digital Bank will initially operate on a pilot basis with a limited clientele. It plans to expand its client base, starting in the third quarter when it will enable 1,000 clients, most of them family and friends of bank employees, to open accounts. The general public will only be able to open accounts at the end of the year, although on Sunday the bank launched a website where prospective clients can join a waiting list.
The bank will offer all the usual banking services, including personal account, loans, deposits and foreign-currency trading. Last May, it reached an agreement to offer credit cards through Isracard and in December became a member of the Tel Aviv Stock Exchange, enabling it to offer brokerage services. It will offer the same for trading in the United States. The bank plans to begin offering mortgages at a later stage.
“The AI revolution is here and now it’s coming to banking,” said Shashua. “The banking system is thirsty for competition and innovation after many years of stagnation. Change can’t come from the traditional system, which is held back by high costs.”
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The brains behind First Digital Bank and the person who founded it in 2018 is Marius Nacht, a founder of Check Point Software Technology and billionaire investor. But in May 2020, after the bank got its licenses from the Bank of Israel, Nacht unexpectedly announced his departure from the venture and transferred control to Shashua.
First Digital Bank executives have declined to discuss their business plan in detail but say the institutional will be fully digital. Among other things, clients will communicate with bankers through an app, online chat and a call center that operates 24 hours a day, with an emphasis on making the process as personal as possible.
The key will be making use of AI, in line with Shashua’s vision. The process of opening an account will be entirely digitized, without the assistance of an employee, and take only a few minutes.
First Digital Bank’s launch comes during one of the most volatile periods in the history of Israeli banking regarding payments and technology. Bank Hapoalim, the biggest, is setting up its own digital bank based on its Bit payments app. Israel Discount Bank and the supermarket chain Shufersal are setting up a joint venture using Facebook’s payments app.
Bank Leumi, Israel’s second-largest lender, has been successfully running its Pepper digital-bank app for several years.
Established banks have been watching First Digital’s plans and studying the impact, but at this stage haven’t decided how to respond to the new competition. They have been hindered by the fact that First Digital has revealed so little of its own plans.
For the new bank to succeed, it will have to win the public’s trust and succeed in luring clients of the existing banks. Reforms that enable clients to change banks within seven days with the click of a button should make its job easier.
First Digital Bank’s competitive edge will not only be its technology but its lower fees. To do the latter, it plans to have a low-cost base, not only because it will have no branch network but because it won’t have a high-cost legacy computer system. First Digital Bank sources said they expect the older banks to cut their fees, but they say they are ready for the competition.
The bank is also counting on AI to free its clients from the more complex parts of money management and to solve problems that are due to faulty financial management, instead of sending them to a financial education seminar. While traditional banks may be able to compete on price, they will struggle to match First Digital Bank technologically so long as they rely on their legacy computer systems.
Another advantage it will have is that its services will be available around the clock, not just during banking hours and without waiting for a call center or branch banker to become available. AI will enable online services to be conducted in ordinary language, which among other things will make clear how much a service will cost and what’s involved.