April 2, 2019 / 10:40 AM / 19 days ago

Warburg Pincus to invest $221 million in Israel credit card firm

JERUSALEM (Reuters) - U.S. private equity firm Warburg Pincus plans to invest 800 million shekels ($221 million) over the next five years to expand its new Israeli credit card business into areas of lending currently dominated by banks, a senior official said.

Warburg Pincus bought Leumi Card from Bank Leumi and Azrieli Group last month for 2.5 billion shekels after regulators instructed Leumi and rival Hapoalim to divest their credit card subsidiaries by 2020. It has since renamed it MAX.

Hapoalim has said it will list shares in its Isracard unit on the Tel Aviv Stock Exchange.

Daniel Zilberman, who heads Warburg Pincus’ European investment activities, told a Bank of Israel conference on Tuesday he wanted to offer credit to more consumers, as well as small and medium sized enterprises (SMEs), moving into an area currently dominated by the country’s banks.

“We believe that (MAX and Isracard) can be innovators and add to competition,” Zilberman said.

He said this will take time since MAX needs to find third party funding. “We are no longer a bank-owned company funded by Bank Leumi,” he said.

Israel passed a law in 2017 requiring the two largest banks to sell their credit card units in a bid to reduce concentration in the lending market and lower credit costs.

Zilberman said that while Israel’s economy has turned into a technology powerhouse, its lending and payments sectors are a decade behind other Western countries — mainly because Israelis are more prudent consumers and because of a lack of competition.

Data, he said, shows that just 5 percent of lending to SMEs comes from non banks versus nearly 50 percent in the United States. Similarly, non-bank sources of lending to consumers in Israel is only about 20 percent, he said.

He noted that Israel has seen cash use drop to about 30 percent of transactions from 40 percent over the last five years but there was room for that to fall further, while the country needs to adopt new technologies.

Reporting by Steven Scheer; Editing by Kirsten Donovan

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