One Zero, Israel’s pioneering fully digital bank, is in the process of raising up to $100 million through a private placement led by Deutsche Bank. Founded by Amnon Shashua, who also established Mobileye, One Zero aims to accelerate its expansion into Europe, starting with Italy, while simultaneously strengthening its digital infrastructure in Israel. With a focus on AI-powered financial services, One Zero aspires to become a global leader in digital banking despite recent challenges, including a slowdown due to the Israel-Hamas conflict.
Background of One Zero
Founded in 2019 by Amnon Shashua, One Zero became Israel’s first new fully licensed bank in over 43 years, marking a significant achievement in the country’s financial landscape. The bank aims to disrupt traditional banking through a hybrid model that combines AI-driven insights with human support to deliver a personalized banking experience. Since its inception, One Zero has raised $250 million, including $120 million in 2021 and another $62 million in early 2023. This ongoing funding round aims to bring the bank closer to profitability by late 2024 while supporting strategic international growth.
Details of the Current Fundraising Round
The latest private placement aims to secure up to $100 million, led by Deutsche Bank, to fortify the bank’s financial standing, enhance its digital infrastructure, and propel its European expansion. About 75% of the funds will be directed toward domestic operations in Israel, while the remaining 25% will support international efforts, starting in Italy. Originally, One Zero set a target of raising $200 million in early 2024 but adjusted this to $100 million due to evolving market conditions and investor interest. The bank maintains a valuation of $320 million, consistent with its previous funding rounds.
Strategic Goals and Expansion Plans
One Zero aims to establish a strong foothold in the European digital banking sector, beginning with Italy by late 2025. The bank is in advanced talks with Banca Generali to facilitate its entry into the Italian market. The Italian operations will be managed by Matteo Concas, a former executive at N26, further demonstrating One Zero’s commitment to leveraging experienced leadership for its expansion. Following Italy, One Zero plans to enter additional European markets, including Spain, France, Switzerland, and Germany, in the coming years. The expansion will involve establishing a holding company structure to manage overseas subsidiaries effectively.
Technology and Innovation
One Zero employs a unique AI-driven approach, integrating generative AI (GenAI) in collaboration with AI21 Labs, an Israeli AI startup. The bank’s virtual assistant, ‘Ella 3.0,’ utilizes large language models (LLMs) to offer 24/7 personalized customer service. It can understand user queries, provide real-time assistance, and generate detailed financial insights. This AI-based innovation aims to redefine customer experience by minimizing wait times and improving service quality. ‘Ella 3.0’ also handles predictive financial tasks, such as expense tracking and interest rate estimates, making it a crucial component of One Zero’s mission to deliver personalized banking services.
Challenges and Competition
One Zero faces significant hurdles as it seeks to expand internationally and compete in the digital banking sector. The recent Israel-Hamas conflict has slowed customer acquisition, potentially delaying the bank’s growth by up to three months. One Zero also faces competition from established players like Esh Digital Bank, a newly licensed rival in Israel. To manage financial pressures, the bank recently reduced its workforce by 10% in Israel, streamlining operations ahead of its entry into the Italian market.
Achieving profitability depends on reaching a critical mass of users and converting them into primary account holders. Currently, only 29% of customers use One Zero as their main banking service, which affects revenue streams. The bank must also navigate complex regulations in European countries while establishing local partnerships, such as its ongoing discussions with Generali Bank in Italy.
Future Outlook
One Zero targets profitability by Q4 2024, backed by its AI-driven services, strategic cost-reduction measures, and expansion plans. The bank aims to grow its user base to 360,000 by 2026, generating annual revenues of $200 million. It is also considering a potential IPO to bolster its financial strength and global reach.
While the bank’s ambitions are high, the road ahead is fraught with regulatory, financial, and operational challenges. Successful operations in Italy could pave the way for entry into additional European markets like Spain, Switzerland, France, and Germany by 2025. Meanwhile, AI technologies such as ‘Ella 3.0’ are expected to remain key differentiators in enhancing customer engagement and driving growth.
Conclusion
The ongoing $100 million fundraising round is a pivotal move for One Zero as it strives to transition from an Israeli fintech innovator to a global leader in digital banking. With AI at its core and a strong focus on international expansion, the bank is well-positioned to redefine personal banking services. However, its success will depend on scaling its customer base, navigating international regulations, and adapting to evolving market dynamics.
