By Michal Ohana, Partner | Financial Regulation, Shibolet
Israel as a Regional Gateway: Why Foreign Companies Should Consider Licensing for Payment Services and Financial Services in Israel
A Mature Market Built on an Advanced Regulatory Infrastructure
Israel is emerging as one of the more advanced regulatory environments for payment services and fintech outside the European Union. For foreign companies considering where to establish a regulated presence in the Middle East, Israel offers an attractive combination of a serious legal framework, specialized regulators, a developed digital market, and consumers who rapidly adopt new financial solutions.
For businesses already familiar with the European environment, and particularly with the principles underlying PSD2 and e-money regulation (EMD), the Israeli framework will feel familiar in many respects. Israel is not the EU, but it offers a similar regulatory logic – one that can be navigated efficiently and that often allows foreign companies to build on existing compliance infrastructure while making targeted local adjustments.
The Regulatory Architecture: A Dedicated and Specialized Framework
The cornerstone of regulation in this area in Israel is the Regulation of Engagement in Payment Services and Payment Initiation Law, 2023, which entered into force in June 2024. This is a dedicated law designed for the modern payments industry, rather than an improvised extension of traditional banking laws.
The law creates a functional and tiered licensing regime, supervised by the Israel Securities Authority, which includes, among other things:
- Issuance of payment instruments
- Clearing of payment transactions
- Management of a payment account, including an electronic wallet
- Money Remittance
- Payment initiation services
The practical implication for foreign companies is clear: it is possible to seek a license tailored to a specific business model, rather than being forced from the outset into a full banking framework that may not fit the nature of the activity. For companies looking to offer a focused product – such as cross-border payments, a B2B payment platform, a digital wallet, or embedded finance solutions – this is an important regulatory advantage.
Financial Information Services and Open Banking: A Separate and Meaningful Growth Layer
Israel’s regulatory framework for financial information services and open banking creates a significant opportunity for data-driven players involved in aggregation, underwriting, financial analytics, and personal financial management. The fact that this is a separate license enables companies to build a more precise market-entry strategy: a payments license where the core activity involves the movement or execution of funds, and a financial information service license where the business value is based on access to information, its processing, and the generation of insights.
For foreign companies, this is an important advantage. The separation between license types allows for better regulatory alignment with the operating model and helps reduce uncertainty already at the planning stage. A market undergoing expansion of API-based infrastructure, alongside a clearer licensing framework, may offer a particularly attractive entry point for companies seeking to establish an early presence in this space.
Consumer Protection and Compliance: A Familiar Environment for International Companies
The Israeli framework combines a meaningful layer of consumer protection with robust compliance, governance, and risk-management requirements. Among other things, the Israeli regime includes mechanisms relating to:
- Transaction cancellations and refunds in certain circumstances
- Transparency regarding payment instructions and the handling of errors
- Authentication and security requirements
- Safeguarding and segregation of customer funds
- Privacy, cybersecurity, and protection of financial information obligations
For companies already operating under European or global frameworks, a key advantage of the Israeli market is the ability to build on existing policies, controls, and compliance structures and adapt them to local requirements, rather than having to start from scratch.
Small and Micro Banks: An Additional Channel in the Making
Alongside the dedicated regulation of payment services and financial information services, Israel is also advancing a broader effort to increase competition in the banking system by adapting the framework for small and micro banks. The final report of the inter-ministerial team, the legislative initiatives that followed it, and the momentum given to the issue במסגרת the 2026 Economic Plan reflect a clear regulatory direction: creating more tailored entry paths for new players while preserving stability, risk management, and effective supervision.
For foreign companies, this development matters for two reasons. First, it signals that the Israeli market is not limiting itself to opening the payments sector alone, but is working more broadly to promote competition and innovation in financial services. Second, for certain groups – particularly players with ambitions to expand beyond payments-only activity – it may point to a future opportunity to consider a broader institutional route, depending on their operating structure, scope of services, and regulatory appetite.
Digital Assets: Israel Is Entering the Stablecoin Arena at the Right Time
Israel is not only regulating the digital assets sector – it is beginning to position itself as one of the more interesting jurisdictions for regulated activity in this field. A particularly notable recent development is that the Capital Market, Insurance and Savings Authority – the financial regulator overseeing digital currency activity in Israel – has approved a supervised Israeli company to issue a digital currency pegged to the shekel.
This is a meaningful step. Stablecoins are no longer an experimental niche, but one of the central growth engines of the digital economy. Leading stablecoins, most notably USDT and USDC, have become real operating infrastructure for trading, value transfer, liquidity, and cross-border payments, and their combined market capitalization already stands at approximately USD 270 billion.
Against that backdrop, the possibility of issuing a regulated shekel-pegged stablecoin sends a clear message to the market: Israel intends to be part of the next generation of digital money infrastructure, rather than merely observe it from the sidelines. For foreign companies operating in payments, fintech, wallets, settlement, and crypto infrastructure, this is a strong signal that the Israeli market may offer not only regulation, but also a genuine strategic opportunity.
This move also aligns well with international trends, particularly the innovative regulatory momentum in the United States around the GENIUS Act. In other words, Israel is not operating in a vacuum – it is converging with the regulatory trajectory of leading markets while creating a distinct opportunity for players seeking to operate in a supervised, advanced, and innovation-friendly environment.
For companies that want to be on the building side of the payments and digital assets world – rather than merely reacting to it – Israel is beginning to look like a jurisdiction worth taking seriously now.
What an Israeli License Signals
An Israeli financial services license is not merely a formal compliance requirement. For business partners, banks, investors, and control functions, it signals institutional seriousness, commitment to proper corporate governance, operational maturity, and the ability to meet anti-money laundering and counter-terrorist financing requirements, risk-management standards, cybersecurity expectations, and capital requirements.
While an Israeli license is not an international passport, it can nevertheless serve as a meaningful indication of regulatory quality and organizational readiness, especially for companies seeking to build a credible regional presence.
This may be particularly relevant for:
- Cross-border payment platforms seeking to establish a regulated operating base in the Middle East
- European fintech companies looking to expand into an advanced market outside the European Union
- Companies combining payments activity with digital infrastructure or digital assets
- Players considering, over the medium to long term, moving from focused payments activity into a broader institutional framework
Why Israel, and Why Now
Israel is a relatively small market, but one that is sophisticated, digital, and highly concentrated in technological innovation. It has a population with high digital literacy, broad smartphone penetration, a developed e-commerce sector, and widespread daily use of advanced payment solutions. At the same time, the Israeli financial system is undergoing an ongoing process of opening up to competition, innovation, and new entrants.
For foreign companies with serious compliance infrastructure, Israel offers an unusual combination:
- Professional and specialized regulators
- A mature consumer and business market
- A developed technological and financial ecosystem
- An opportunity to enter at a relatively early stage of a regulated market that is evolving rapidly
The core message is simple: Israel is not an “easy” market – it is a high-quality one. For the right companies, that is precisely the advantage.
How to Get Started
For a foreign company considering entry into Israel, the right starting point is not filing a license application, but conducting an early and precise analysis of its operating model. The first step is to assess what service is actually being provided – payments, payment initiation, financial information, or a combination of these – and which regulatory framework applies to each component of the business.
The next step is to map the relevant licensing requirements, including issues such as corporate structure, controllers, officers, outsourcing arrangements, operational infrastructure, and the planned scale of activity. This should be followed by the development of an appropriate corporate governance plan, including internal oversight mechanisms, allocation of management responsibilities, compliance policies, and risk-management procedures.
In parallel, the company should prepare for capital requirements, anti-money laundering and counter-terrorist financing frameworks, and a cybersecurity and information security envelope appropriate to the nature of the activity and services. Companies that undertake this preparatory work thoroughly will be better positioned to run an efficient, credible, and persuasive licensing process before the relevant regulator.
Disclaimer
The above is a general overview only and does not constitute legal, regulatory, or commercial advice. The applicability of licensing and regulatory requirements in Israel depends on the specific business model, corporate structure, type of services, and the particular circumstances of each case. The window of opportunity for early positioning in Israel’s regulated financial services market remains open. Companies that act now will be able to establish themselves early, build a strong regulatory and commercial foundation, and shape their place in the market before the space becomes crowded
