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Israeli tech's Singapore connection

Why Singapore banks and businesses are tying up with AI startups

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OurCrowd's founder and CEO Jon Medved speaking to participants at OurCrowd's annual summit in Jerusalem that was held in March.

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Participants at OurCrowd's annual summit in Jerusalem that was held in March.

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Participants at OurCrowd's annual summit in Jerusalem that was held in March. OurCrowd plans to raise between US$30 million and US$50 million with an Asian partner for its first Asia fund in the next 18 months.

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"It's about creating engagement, and that creates true ROI (return on investment) for the banks today." - Shalom Sagi, senior director for Asia Pacific, Personetics. Personetics' services include setting up triggers for when a customer needs to top up his account balance to cover upcoming payments.

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UOB has referred a handful of SMEs, including tech companies under its tech incubator programmes, to OurCrowd, for them to be considered as portfolio companies of OurCrowd.

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Mark Gazit, CEO of Israeli cybersecurity firm ThetaRay, has been appointed to the Monetary Authority of Singapore's International Technology Advisory Panel for a two-year term.

SINGAPORE may be emerging as a springboard for Israeli firms with a focus on artificial intelligence (AI) that are looking to tap Asia's rise in wealth and stature.

Take one of Israel's venture funding outfits, OurCrowd, which set up its first Asian office in Singapore in 2016. Since then, it has been hosting clients out of Asia - including from South-east Asia, Greater China, and Japan - at a steady clip, and plans to add more offices in Asia soon. This is relevant as according to Israeli data firm StartupHub.ai, OurCrowd is the most active investor in AI startups in Israel, with some 26 investments in total.

Denes Ban, managing director of Asia at Israel's equity venture crowdfunding platform OurCrowd, tells BT at the sidelines of OurCrowd's annual summit in Jerusalem in March that Asian investors are expected to make up the bulk of the platform's investor base in time.

As it is, flows from Asia have in the last couple of years made up more than half of the funding recently invested on their site. OurCrowd plans to raise between US$30 million and US$50 million with an Asian partner for its first Asia fund in the next 18 months. This Asia fund will draw funds from investors in Asia, and offer access to international tech companies, including those from Israel and Asia.

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Partnering with banks offers Israeli startups a way in to tap Asia's burgeoning wealth. And this comes as Israel's AI startup ecosystem is blossoming, with more than 950 active startups using or developing AI technologies as at Aug 30, 2018, data from Israeli tech data firm StartupHub.ai showed.

Over the last five years, an average of 140 startups are established annually. AI startups raised close to US$2 billion in funds in 2017, up 70 per cent from 2016.

OurCrowd founder and CEO Jon Medved told media at its summit that Israel and China today are among the top global locations building out AI. And AI is rapidly emerging as an essential sector, both in terms of today's business needs and where investors want to bank their money. "If you want to get venture capital, mention AI. In fact, if you don't have AI as part of your pitch, you're sort of in trouble," he had said.

While not directly comparative, a Tsinghua University report as cited by South China Morning Post showed that China's AI market was worth some US$3.55 billion in 2017, in itself up 67 per cent from the year before.

Against this backdrop, banks in Singapore are keen to work with Israel firms, tapping their expertise in screening and developing technology offerings. OurCrowd meanwhile has worked its way through Asia by partnering a local bank in each Asian country, with UOB as its Singapore choice in 2016.

The benefits work in two ways: banks are keen to work with Israeli firms directly to raise their game by using data, fending off competition from Big Tech. Banks here can also tie up with players such as OurCrowd to help its Asian business clients source for new ideas in restructuring their traditional businesses for Industry 4.0, as well as invest in tech outfits that may take off in this new data economy.

This week in Brunch, we speak with UOB to understand its ties to OurCrowd, as well as two up-and-coming Israeli fintechs that are keen to dive deeper into the world of Asian business and finance, through Singapore.


Helping Asian banks fend off Big Tech

WITH the launch of Apple Card in the US some months ago, more banks in Asia are sitting up to the competition that may soon come pounding at their doors.

And what Apple Card - a partnership between Apple and a new consumer-finance entrant Goldman Sachs - offers is a new way of banking by using data to offer personalised services based on a consumer's lifestyle patterns. Apple says it can tag the data using machine learning, deciphering purchases and categorising them into food or clothing sales, so each customer can easily find out their spending patterns and understand plainly if they have been credit-binging.

In the wake of that game-changing move, banks are struggling to clean up the enormous amounts of data that pass through their transactions every minute. To help them score better through data analytics, Israel's artificial intelligence (AI) firm Personetics offers a solution to regional banks that see potential in tapping the burgeoning millennial market in Asean.

Personetics' senior director for Asia Pacific Shalom Sagi says it is in "more advanced talks" with several banks in Thailand and Malaysia to sell its AI services that would allow banks to draw patterns from transactional data.

Personetics' services include setting up triggers for when a customer needs to top up his account balance to cover upcoming payments. Its service also allows the bank to nudge customers to save more or to spend wisely, creating a stickier relationship for the bank.

Personetics is itself backed by several global banks such as Spanish lender Banco Santander, and Singapore's own UOB. It has an office in Singapore, and is using it as a springboard to launch into other parts of Asia, says Mr Sagi.

Beyond selling AI services for data analytics, Personetics looks to eventually offer "self-driving finance", where customers can get automated advice and transfer of savings into investments, or to use savings to reduce debt, based on real-time projections of cashflow balances.

"It's about creating engagement, and that creates true ROI (return on investment) for the banks today."

Personetics is already working with UOB on the bank's digital offshoot known as TMRW, that was launched officially in February this year.

First launched in Thailand, TMRW aims to attract three to five million Asean customers in the next five years, which mainly involve millennials who transact heavily on their mobile phones. The deal has spurred more conversations with South-east Asian banks eager to collaborate as well, says Mr Sagi.

And as more digital or challenger banks step up with services in Asia, Personectics sees room to boost its growth out of this region. While it has just two staff members here now, it plans to add more staff in its Singapore office in time.

"In the last two or more years, the competition with the tech giants have been around the corner when we have these discussions with banks," says Mr Sagi, pointing to interest from Apple, Amazon, Google and Alibaba in financial services.

"These are very strong competition - and we're saying to banks that if they don't look out, in a very short time, Apple is going to replace (them)."


Can banks be more than fair-weather friends?

WE'VE all heard this before: banks can be a fairweather friend.

When all is fine and sunny, banks roundly support businesses through the good times. But when dark clouds gather, banks pull credit lines needed to get through a difficult period.

This criticism of banks and their so-dubbed mercenary tack does not escape Janet Young, managing director and head of group channels and digitalisation at UOB, who in March shepherded a busload of business clients from markets including Singapore, China, and Vietnam, to the annual OurCrowd summit held in Jerusalem.

There, these small-and-medium enterprise (SME) clients from South-east Asia mingled with portfolio companies of OurCrowd, a UOB-backed venture capital setup in Israeli that would matchmake accredited investors to its portfolio companies through equity crowdfunding.

It's an outdated view, says Ms Young, that on a rainy day, a bank takes an umbrella away. Instead, banks are increasingly trying to work with SME clients to ease them into restructuring for the future. This is a future that includes not just investing in technology, but also in sharpening their thinking to tackle a much larger opportunity in an increasingly borderless world.

Behind closed doors, banks with SME clients will say that while headline numbers suggest that SME funding is lacking, the reality that lenders struggle with is in getting SMEs to tackle strategy.

As one reflection of this, UOB has an FDI (foreign direct investment) advisory unit that it uses to draw investment flows from SMEs in the region looking to invest, but that need guidance on how to expand into new markets that may be more difficult to navigate. The difficulties come given a cocktail of issues ranging from capital controls to the differing business conditions that suggests South-east Asia is anything but homogeneous.

When UOB began working with OurCrowd in 2015, its starting point was to bring together the investing needs of its SME clients, and the leadiing-edge ideas from Israel - a place that offers deep-tech solutions and is one of the largest hubs for artificial intelligence services globally.

"The genesis was in connecting smart ideas and smart money," Ms Young tells The Business Times.

As time passed, the bank noticed that smart money extended beyond investing for themselves to increase personal wealth, but was also looking for ways to future-proof their businesses by integrating available technologies from vendors such as tech startups.

Working with OurCrowd - in which UOB has invested more than US$10 million directly for an undisclosed equity stake - the bank also found that the VCs' due diligence tests can offer a dress rehearsal for SMEs looking to expand its business into new markets.

UOB has referred a handful of SMEs, including tech companies under its tech incubator programmes, to OurCrowd, for them to be considered as portfolio companies of OurCrowd.

In undergoing an estimated six-month scrutiny by a venture capital investor, such SMEs are asked tough questions on whether their products and services are scalable, and whether the current traditional business will be able to pivot into a new service that is ripe for the new economy. "It offers a reality check," says Ms Young.

The bank itself is also changing - at its own pace - to assess SMEs beyond just looking at financials, and revenue projections. In some cases, it is trying to look at customer engagement metrics, to understand if these digital businesses are capturing customer engagement by offering a superior customer experience compared to their peers.

By moving along the deeper needs of its SME clients, UOB can move away from a "commoditised" way of working with SMEs, going beyond offering a credit facility, to growing with the clients looking to scale for the new economy.

"Businesses are so keen today to find and tap new reserves of ideas and innovation, that maybe their original businesses can come up with as well... so instead of lending them (money), this helps them to sharpen their addressable market and target audience," Ms Young says.

She adds that the message of reaching a much bigger market, beyond Singapore, is now sinking in among Singapore corporates. And to push SMEs to try, Israel's experience offers a refreshingly forgiving attitude towards risks and business mishaps - a lesson for Singapore SMEs that may be too risk-averse to take that first step out.

"The acceptance of failures is very commonplace here (in Israel)."


Cybercrime: finding snakes amid the butterflies

THE way to understand how suspicious transactions can be missed by banks is to think about a system that has been trained to identify millions of butterflies.

But while that system, akin to a digital lepidopterarium, is perfectly able to identify positive cases, it will not be able to pick out scorpions or snakes because it simply hasn't been trained to do so.

So banks' instructions to the system is to "show me everything that is not a butterfly", says Mark Gazit, CEO of Israeli cybersecurity firm ThetaRay.

This results in a tremendous load of anomalies - scorpions and snakes that don't fit normal transaction patterns - that compliance officers at banks have to sift through to pick out the false positives from the mix.

"In the last five years, the world of financial crime has totally changed. Criminals no longer go into branches to shoot and steal money," says Mr Gazit. "And most of the cybercriminals today are not there to deface websites. It is a very lucrative business."

ThetaRay steps in by effectively trying to codify intuition through machine learning, says Mr Gazit. It taps the part of the mind that draws relationships with parameters.

When someone with a salary of S$2,500 a month gets a sudden million-dollar drop into his or her account, or if he cuts cheques or make bank transfers regularly in small, but consistent amounts to a seemingly unrelated party, these are red flags that a system can be trained to pick up.

This is how the brain works, in joining dots to make connections. Or as Mr Gazit says, when looking at a fresh face, the mind does not pick on the exact distance between the eyes. "You just look at the proportion."

With Asia swelling in wealth, ThetaRay is taking calls from banks from places such as China, Hong Kong, Thailand, Vietnam, the Philippines, and Indonesia, that want to tap into the tech firm's artificial intelligence (AI) capabilities.

ThetaRay is already working with Singapore's OCBC on a pilot, which an OCBC spokesman told BT remains ongoing. Its pilot, first announced in 2017, showed that ThetaRay's technology was able to reduce the number of alerts that did not require further review by 35 per cent. The accuracy rate of identifying suspicious transactions increased by more than four times, the bank said. The test was based on one year's worth of OCBC corporate banking transaction data, with the data anonymised.

Mr Gazit also sees Singapore regulators as forward-thinking when it comes to using AI to combat cybercrime. As it is, Mr Gazit was recently appointed to the Monetary Authority of Singapore's International Technology Advisory Panel. The panel advises the Singapore regulator on international developments in fintech. Mr Gazit will be on the panel for the customary two-year term.

With the recent appointment, Mr Gazit, who also chairs an industry association for fintechs in Israel, hopes to also bring more attention to fintech companies out of his country.

He points out that Israel can offer deep-tech cybersecurity solutions to the rest of the world because it is a product of its environment. "Israel has eight million people. It's a beautiful place, but we have to protect ourselves."