Until three years ago, fintech company Rapyd was synonymous with the success and prosperity of Israel's tech industry. Glamorous parties, a restaurant led by chef Assaf Granit, a gym, hair salon, a basketball court and a climbing wall all reflected that Rapyd was one of Israel's fastest growing tech companies.
In under two years and after three financing rounds, Rapyd grew from a unicorn valued at just over $1 billion to a valuation of $8.75 billion, according to PitchBook. Since August 2021, it has remained at the top as one of the most valuable companies in Israel, with only a few giants like Wiz and Navan (formerly TripActions) overtaking it.
Last weekend, "Bloomberg" revealed that the company is currently raising $300 million at a valuation of $3.5 billion – 60% lower than the valuation it received almost three years ago – apparently so it can acquire a startup.
Rapyd is the third Israel fintech unicorn to record a huge drop in valuation in just a few years. Three years after the peak of the high-tech bubble, three of Israel's leading fintech companies – Melio, Rapyd and eToro – are facing a new reality.
While these companies continue to show revenue growth and sign strategic partnerships, their value has eroded dramatically. Thus, "Globes" first reported that Melio, which has developed a payments platform for small businesses, saw its value cut in half last October, from $4 billion to $2 billion, despite reporting a tenfold jump in revenue. Similarly, online trading platform eToro has seen its valuation cut in half. The company will reportedly attempt a Wall Street IPO this year at a valuation of $5 billion, down from its valuation of $10 billion in 2021.
Behind these numbers lies a complex story about the maturation of the global fintech industry, and in particular the Israeli one.
"Prepared to Pay Less"
Rapyd has grown into an international payments giant that has built its competitive advantage on its ability to enable businesses outside the US to accept payments from a wide range of channels – from banks and credit card companies to digital wallets and local payment companies.
The parties of 2021 at Rapyd are over and in the new reality the company has implemented repeated rounds of layoffs, as its workforce has shrunk from 800 to 630.
Contrary to popular belief, Rapyd’s main rivals are not fintech giants like Stripe and Adyen, which focus primarily on digital payments for large companies. Rapyd actually competes with companies like PayPal and dLocal, which specialize in international money transfers and payment solutions for emerging markets. While digital payments are considered a relatively stable market with clear margins, international money transfers in emerging markets are currently characterized by fierce competition, complex regulation, and lower margins. "Rapid operates in relatively emerging markets," notes a market source, explaining that this is what makes it a direct competitor to companies like dLocal, which has also experienced a 60% drop in value since its IPO in 2021.
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"Investors are prepared to pay less," explains the source, "If they used to be willing to pay a multiple of 20 or 30 on revenue, today it is only 4-5." According to him, "Ultimately, most of these companies raised money in irrational ways and the expectations were accordingly not logical."
The major difference is that publicly-traded companies have already adjusted to the new valuations, while the same process is now taking place with a delay in the private market. "There are usually gaps of between nine and 18 months between the private and public markets," the source explains.
However, sources also point out that Rapyd's performance in terms of profitability is good. Now, as the company seeks to raise $300 million and make an acquisition, the main question is whether it will be able to cope with the challenges in emerging markets, or whether it will try to imitate the PayPal model.
eToro, known mainly as a trading platform associated with the cryptocurrency market, is also trying to find its way. The company, which previously dreamed of an IPO at a valuation of over $10 billion, has undergone a significant streamlining process. It has entered into other trading areas like ETFs and mutual funds, and even acquired Australian company Spaceship – this for $51 million, with the aim of entering the pension management sector. In the UK, the company signed a partnership with a local pension fund, in a move that reinforced this trend.
Strategic Partnerships
Melio, founded in 2018, is a good example of the change in market perception. The company has developed a platform that allows small businesses to manage payments to suppliers in a smarter and more efficient way. Unlike its rivals, the company has chosen a unique strategy. Instead of building an independent brand, it integrates into existing systems of banks and large financial companies. Thus, end users make transfers through the interface they are familiar with, while Melio operates behind the scenes. This strategy has proven itself with a significant jump in revenue, but the market is no longer willing to give the same generous valuations as previously.
The company has signed strategic partnerships with major players such as Payserve – the largest software distributor for banks in the US. Moreover, Melio had already signed similar agreements with other significant players such as Capital One, Shopify, Amazon and Intuit.
"At first with many fintech companies, we had a lot of exciting promises. They promised to change everything we knew about the world of finance – from the way we pay, through the way we borrow money, to the way we run our businesses," explains a market source.
According to him, "A good example of the gap between vision and reality is the story of AI-based underwriting companies. Companies like Pagaya and its competitor Upstart promised a revolution in the world of credit. They claimed that their smart algorithms could analyze data better than any human banker and make more accurate credit decisions." But, he explains, reality hit them in the face and their models failed to assess real credit risks, and they suffered significant losses.
"At the same time, we saw a similar failure in the field of P2P (peer-to-peer lending), a model in which individuals lend money directly to other people through a digital platform, without the involvement of a bank. Companies like Fundbox promised a revolution in lending, claiming that smart algorithms could connect lenders and borrowers more efficiently than traditional banks. However, in practice, they encountered significant credit losses when it became clear that their models were not good enough."
The maturation stage
The decline in the valuation of Israeli companies reflects a broader global trend in the fintech industry. For example, Klarna, the Swedish 'buy now, pay later' company, suddenly reduced its valuation from about $45 billion to $6.7 billion in 2022. Stripe, the leading payments company, was also forced to reduce its valuation from $95 billion in 2021 to $50 billion last year. Even PayPal, one of the oldest and most established in the field, has erased about 70% of its valuation since September 2021. "What we are seeing is a convergence to more realistic values," explains an expert in fintech investments. "During the bubble, companies were trading at crazy revenue multiples of 40-50."
At the same time, the latest KPMG data reinforces this picture. The volume of global investments in fintech fell to $51.9 billion in the first half of last year, down about 17% compared with the second half of 2023. According to market sources, "Investors today are much more selective. They are looking for companies with a clear business model, positive cash flow, and a clear path to profitability."
Even with the challenges, some market data actually indicates significant growth potential in the fintech field. According to KPMG data, despite the decline in the volume of investments, certain areas of fintech continue to show significant growth. For example, the payments sector attracted investments of $21.4 billion in the first half of 2024 alone, almost the same as in all of 2023.
However, the path to success has changed. Instead of dreaming of a revolution, companies are now required to prove a sustainable business model and find a balance between innovation and profitability. "Today we are in the maturation stage," explains a market source, "The only area of fintech that has really managed to prove itself is the world of payments. But even there, the fierce competition and the pressure to lower fees make it difficult for companies to generate significant profitability. In the past, companies could differentiate themselves through their technology or service. Today, when services are quite similar, the only distinctiveness that remains is price and this leads to a race to the bottom in fees."
Now, for Israeli companies, the challenge is twofold – to continue to grow and expand in a competitive market, while maintaining profitability and operational efficiency. The decline in value is painful, but it reflects a more mature reality in which innovation must be backed by positive numbers in terms of profits. "This does not mean that fintech companies have failed," the source concludes. "They really changed the market, cut costs and improved customer service. But the dream of a total revolution in the world of finance has been replaced by a more sober reality."
Published by Globes, Israel business news – en.globes.co.il – on February 11, 2025.
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