JERUSALEM, Jan 27 (Reuters) - The global financial technology sector will continue to mature in 2026 after recovering sharply in 2025 from a three-year downturn, Israeli technology investment group Viola Ventures said in a report on Tuesday.

In its 2026 State of FinTech report, Viola said the sector was entering a new chapter with stronger founders and more durable business models.

"This environment will produce fewer companies, but better ones," Viola said, adding that Israeli fintech companies were "uniquely positioned to be overrepresented among them".

Israeli fintech companies raised about $1.4 billion in 2025, broadly steady compared with 2023 and 2024. In total, Israeli tech startups raised nearly $16 billion last year.

But the value of merger and acquisition deals in Israeli fintech rose in 2025 to $5.8 billion from $1.2 billion in 2024, led by Xero's $3 billion purchase of Melio and Munich Re's $2.6 billion acquisition of Next Insurance.

"The recovery underway is not a return to the excesses of the prior cycle, but the beginning of a more disciplined, more efficient, and more durable ecosystem entering its next growth phase," said Viola, one of Israel's biggest venture firms.

Viola in December raised $250 million in capital for two new funds to back the "next generation of Israeli startups".

Israel's tech sector, one of the largest in the world, accounts for about 20% of GDP, 15% of jobs and more than half of Israeli exports.

Viola noted that fintech accounts for 10% of the tech workforce. The sector also includes 13 unicorns - startups valued at $1 billion or more - and 10 public fintech companies.

(Reporting by Steven Scheer. Editing by Mark Potter)

((steven.scheer@thomsonreuters.com; +972 2 632 2210; Reuters Messaging: X: @StevenMScheer))