Monitise's Visa issues reflect wider struggle with UK tech groups

Shares in mobile payments company Monitise slumped by more than 30 per cent on Thursday when Visa Inc, the UK group's fourth-largest shareholder and one of its longest-standing investors, said it was considering selling its stake.

The news comes only three days after Monitise said its full-year losses had grown at twice of the rate of sales as it struggles with a shake-up of its business model.

It also highlights the challenges facing a clutch of high-profile UK tech groups which are losing investor confidence after initially sparking investor excitement.

There has been sluggish demand for new products from WANdisco, the cloud computing company, and shares in Blur Group, the "eBay for business services" platform, have taken hits from revenue recognition problems and management changes.

Monitise, which listed on London's Alternative Investment Market in 2007, sells mobile banking software that reaches 200m users, via customers including HSBC, RBS and Visa. It has taken a number of steps to overhaul its business model, shifting from a licence business model, which required its customers to pay a large upfront fee, to a subscription-based model.

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But Visa has since reduced its stake to 5.5 per cent as part of its policy of investing in companies at an early-stage and reducing its influence as the company grows. Visa said it had appointed JPMorgan to advise on its options, "given the maturation of Monitise as a company" and said it was looking to take more of its mobile development resources in-house.

"What Visa is saying is that the teenager is ready to leave home," said Alastair Lukies, Monitise's co-founder and joint chief executive. "What's happened today is consistent with Monitise's strategy. For many years we were accused of being a Visa shop, and now we're an agnostic network."

<>Mr Lukies has likened Monitise's refreshed business model to a mobile-age version of Link, the group that runs the UK's ATM infrastructure. The company is aiming to help banks find new ways to make money from their data, including using apps as targeted marketing platforms. It recently signed a deal with IBM to help distribute its software to Big Blue's customers, which some analysts speculated could foreshadow a takeover.

The announcement from Visa also raises questions about Monitise's relationship with Visa Europe, a separate entity owned by a co-operative of thousands of European banks that retains a near 6 per cent share of Monitise.

Visa Europe said it retained a "firm commitment" to Monitise as a shareholder and investor, despite selling down 5 per cent of its holding in June.

Ali Farid Khwaja, analyst at Berenberg, said that Visa's motivations for doing less outsourcing might apply to other customers - and undermine the selling-point of third-party providers such as Monitise. "With mobile banking becoming a crucial part of banking infrastructure, it's likely that banks will take it in house," he said.

He noted that HSBC had two apps, one developed by Monitise, and a more feature-rich version that the bank built itself.

"There's always been big expectations in relation to partnerships, first with Visa Inc, then with Visa Europe, then with Telefonica, Mastercard and now IBM - but so far none of these expectations have materialised," Mr Khwaja added.

Traditional payment companies like Visa can see technology is threatening their margins and cash flows, said Peter Roe, analyst at TechMarketView. "It is understandable that Visa would wish to build greater independence - they probably don't want to be too closely aligned to IBM, either," he added.

The wobbles at Monitise highlight the difficulties for young British tech groups who have raised funds via the public markets. They often need to convince investors to weather short-term losses and investment spending with a story of their long-term potential. In the US, where there is a greater availability of private venture capital funding, some of the problems in their development could be kept out of the public eye.

Monitise has switched senior members of its board in recent months, recruiting two Visa executives - Elizabeth Buse, who joined as co-chief executive in June, and Mike Dreyer, Visa's global head of technology, who was appointed president for the Americas this month. Mr Lukies has presented the moves as part of the company "growing up".

Monitise said its guidance for the financial year, and its aim of reaching profit by 2016, remained unchanged.

Shares in the group closed down 31.3 per cent on Thursday at 29.2p.

Rugby player turns entrepreneur: a closer look at the Monitise's founder

When Alastair Lukies talks about the potential of mobile money, he displays the same force and enthusiasm he must have brought to the field in his days as a professional rugby player.

They are qualities he will need as Monitise, the company he co-founded and runs as joint chief executive, comes under pressure from Visa Inc, which is mulling whether to sell its stake.

Mr Lukies was brought up playing rugby on a farm in Essex. His career on the teams of Saracens and London Irish was cut short by a broken leg, after which he moved to Singapore to do sports marketing at a friend's suggestion.

A job producing an online version of Parliament House's magazine led him to develop Epolitix.com, a news site covering Westminster politics. This led him to cross paths with Steve Atkinson, then head of policy at Vodafone. The pair founded Monitise in 2003 - spinning it out of Morse, a tech infrastructure and services company focused on data storage and management.

They floated Monitise on the Aim market in 2007. The financial crisis almost sunk the group, pushing its shares down from 22p to 2p. The shares rebounded and rallied in 2013 on the back of interest in the growth of mobile banking, But the company has lost nearly two thirds of its value since the start of this year, following profit warnings, the global sell-off in tech stocks and changes from a licensing to subscription business model.

Mr Lukies has been praised in the UK tech scene for growing Monitise, though the company is yet to make a profit. He is close to Prime Minister David Cameron and accompanied him on a recent trade delegation to China. Mr Lukies was recently awarded an Order of the British Empire for his services to mobile banking and charity, and was also appointed chairman of the freshly-launched Innovate Finance in August, a new government-sponsored industry body set up to promote the UK's burgeoning financial technology sector.

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