* Santander division sees 1-2 investments annually in Israel
* Citi mobile trading app developed in its Tel Aviv lab
* Israeli fintech M&A volume jumped in 2015
By Tova Cohen
TEL AVIV, Dec 16 (Reuters) - A five-minute chat with anexecutive from Israeli start-up MyCheck was enough to spark theinterest of Mariano Belinky, managing partner at BancoSantander's venture capital division.
After more formal follow-up meetings, the Spanish bank madeits first foray into Israel, investing an undisclosed sum inMyCheck, which develops customised mobile payment apps forrestaurant chains such as The Cheesecake Factory.
With many clients in the hospitality sector, Santander wasintrigued by the possibility of providing "a new and bettersolution for our clients," Belinky told Reuters at a financialtechnology (fintech) event hosted by Santander in Tel Aviv lastmonth.
He now expects Santander InnoVentures, which has $100million to invest over two years, to make one or two investmentsin Israel annually, the only market it invests in without alsohaving a banking operation.
For years, Israel tried to entice foreign banks to come andcompete with domestic operators, with little success.
Now, foreigners are finally coming, but not to open up bankbranches. It's Israel's skills in the flourishing space wheretechnology and finance meet that is drawing them in.
Major banks such as Citi, Barclays andSantander have all set up hubs and are investing in or mentoringstart-ups in the burgeoning fintech sector. The smartesttechnologies are likely to be implemented at their banks.
Originally fintech applied to technologies that helpedfinancial institutions conduct transactions faster and morecheaply. Today, fintech ranges from risk management and datasecurity to mobile banking and alternative currencies. Globally,investment in the sector tripled to $12 billion in 2014,according to Accenture.
With expertise in security, mobile communications and bigdata analysis crafted in military intelligence units, Israel ishelping financial groups to serve customers better.
"There's a very strong innovation culture here which isclearly exciting," Belinky said, noting Santander InnoVenturesalso invested in three U.S. start-ups and one in Sweden.
MyCheck Chief Financial Officer Itai Nebenzhal saidSantander was expected to implement MyCheck's technology for itscustomers in 2016.
CITI MOBILE APP
Citi, which has invested tens of millions of dollars in itsTel Aviv tech hub and has received a five-year government grantof $25 million, is already deploying Israeli technology.
Citi's Tel Aviv lab developed the mobile app for "CitiVelocity", one of the largest trading and research platforms forinstitutional investors, with daily volume exceeding $3 billion.The app is the only one providing market research and tradingcapabilities under one roof for foreign exchange, Citi said,adding other businesses such as equities, interest rates andcommodities are looking to incorporate the app.
The Tel Aviv lab, which works with tech teams in London andNew York and employs 140 people, focuses on mobile and big dataR&D, said Neil Corney, Citi Israel's chief country officer.
According to the Israel Venture Capital Research Centre, in2014 there were 379 companies and 14 foreign R&D centres workingon financial technology in Israel. Fintech start-ups raised $369million in 2014, up from $13 million in 2009.
While data from 2015 is not available, there was asignificant increase this year, said Yoav Caspi, a partner inthe AYR law firm who handles many fintech clients.
RISING M&A
Six companies were sold in 2014 for a total of $695 million,the largest being the sale of mobile paying app Check to IntuitInc for $360 million. This number is set to soar in2015 with one deal alone -- the acquisition of payment servicesprovider Fundtech by Canada's D+H -- valued at $1.25 billion.
Outdated regulations in Israel, high costs for developing aninitial product and lack of knowledge regarding the needs offinancial institutions made it difficult in the past for Israelistart-ups to stand out, Caspi said.
But as fintech start-ups began targeting enterprises andend-users, rather than just banks, more Israeli entrepreneursbegan to find the sector attractive, he said.
Barclays, the first foreign bank to open a lab under theauspices of a Finance Ministry programme to encourage financialinstitutions to invest in fintech, is establishing a scheme tomentor 10 Israeli start-ups at a time, similar to programmes ithas in London, New York and Cape Town.
In Israel, the bank will focus on cyber security, blockchain-- the technology underlying digital currency Bitcoin -- andcompliance solutions, said Michal Beinisch, chief operatingofficer of Barclays Israel.
Barclays believes adopting technologies from start-ups willhelp it compete with advanced financial technologies includingmobile payment and digital wallet services.
"We realised what all the banks are realising - unless we gowith open innovation rather than internally developed solutionsthe way banks previously did, banks will lose out to thetechnology companies," she said. (Editing by Rachel Armstrong and Keith Weir)
Barclays (BARC)
