One Zero, Israel’s first fully digital bank, has raised up to $100 million in a private placement, with Deutsche Bank leading the round. Founded by Amnon Shashua, who is also the creator of Mobileye, One Zero continues to make strides in fintech. This latest fundraising initiative is designed to fuel the bank’s expansion across Europe, beginning with Italy, while enhancing its digital operations in Israel. With a strong focus on AI-powered financial services, One Zero is positioning itself to become a global player in digital banking, despite challenges in customer acquisition and a recent downturn due to the Israel-Hamas conflict.
Background of One Zero
One Zero was founded in 2019 by Amnon Shashua, renowned for his innovations in AI and autonomous vehicles through Mobileye. The bank became the first new fully licensed bank in Israel in over 43 years, marking a significant milestone in the country’s financial sector. It aims to disrupt traditional banking with a hybrid model that blends AI-driven insights and human support, creating a personalized banking experience for its users. One Zero has raised a total of $250 million so far, including $120 million in 2021 and another $62 million in early 2023. This latest funding aims to bring the bank closer to profitability by late 2024 while supporting strategic international growth.
Details of the Current Fundraising Round
One Zero recently secured up to $100 million through a private placement led by Deutsche Bank. This funding is part of the bank’s efforts to strengthen its financial base, enhance its digital banking infrastructure, and support its European expansion plans. The bank plans to allocate 75% of the funds for domestic operations in Israel and 25% for its international rollout, starting with Italy. Originally, One Zero aimed to raise $200 million in early 2024, but the goal was adjusted to $100 million to better align with market conditions and investor interest. The bank is currently valued at $320 million, the same as during its previous funding rounds.
Strategic Goals and Expansion Plans
One Zero aims to be a major player in the European digital banking space, with Italy as its first target market by late 2025. The bank is already in advanced talks with Banca Generali to facilitate this launch. The Italian operations will be managed by Matteo Concas, a former N26 digital bank executive, demonstrating One Zero’s commitment to recruiting experienced leadership for its expansion. After Italy, One Zero plans to enter other European markets such as Spain, France, Switzerland, and Germany over the next few years. The expansion strategy involves setting up a holding company structure to manage its overseas subsidiaries more effectively.
Technology and Innovation
One Zero leverages a unique AI-driven approach, integrating Generative AI (GenAI) developed in collaboration with AI21 Labs, an Israeli AI startup. The bank’s virtual assistant, ‘Ella 2.0’, is powered by large language models (LLMs) and is designed to offer personalized, 24/7 customer service. It can understand customer queries, provide real-time banking assistance, and generate detailed financial insights, all while maintaining high accuracy and evolving based on user feedback. This innovation aims to redefine customer experience in digital banking by reducing wait times and improving service quality. Ella 2.0 also handles predictive financial tasks, such as expense analysis and interest rate estimates, making it a critical component of One Zero’s mission to deliver personalized private banking services.
Challenges and Competition
One Zero faces significant challenges as it expands internationally and competes in the digital banking sector. The recent Israel-Hamas conflict has slowed customer acquisition, potentially affecting the bank’s growth timeline by up to three months. The bank also has to contend with established players like Esh Digital Bank, a new competitor in Israel, which has received regulatory approval. To address financial pressure from its expansion plans, One Zero has laid off around 10% of its staff in Israel, streamlining operations as it prepares to enter the Italian market.
Additionally, One Zero’s path to profitability hinges on reaching a critical mass of users and successfully converting them to primary accounts. As of now, only 29% of customers have made One Zero their main banking service, which affects its income stream. The bank must also navigate complex regulations in European countries while establishing local partnerships, such as its current discussions with Generali Bank in Italy.
Future Outlook
One Zero aims to achieve profitability by the fourth quarter of 2024, supported by its AI-driven services, strategic cost-cutting measures, and expansion efforts. The bank plans to reach a user base of 360,000 by 2026, which is expected to generate annual revenues of $200 million. The company is also preparing for a potential IPO, which could further enhance its financial standing and global reach.
Despite these ambitions, the path forward is fraught with regulatory, financial, and operational hurdles. Success in Italy could set the stage for One Zero’s entry into other European markets like Spain, Switzerland, France, and Germany by 2025. Meanwhile, the integration of AI technologies, such as ‘Ella 2.0’, is expected to remain a key differentiator in maintaining customer engagement and driving growth.
Conclusion
The $100 million funding round marks a pivotal step for One Zero as it aims to transform itself from an Israeli fintech pioneer into a major global player in digital banking. With AI at its core and a strategic focus on expansion, the bank is well-positioned to redefine personal banking services. However, its ability to compete effectively and achieve profitability will depend on scaling its customer base, navigating international regulations, and adapting to evolving market conditions.
