Is Monitise Plc’s Partnership With Virgin Money Holdings (UK) PLC A Game Changer?

Mobile payment solutions provider Monitise (LSE: MONI) (NASDAQOTH: MONIF.US) has today announced a deal with Virgin Money (LSE: VM) to help develop elements of the bank’s future digital banking offering, with the aim seemingly being to help it to catch up with the services currently provided by many of its larger banking peers.

The deal builds upon a commercial relationship that was first established around a year ago, and is due to last for seven years. In this time, and with Monitise now on board, Virgin Money could pose a greater threat to its larger banking peers (some of whom already have relationships with Monitise) and allow it to tap into the stunning growth potential of mobile banking.

This could prove to be a crucial step for Virgin Money, as its lack of size and scale are unlikely to pose as great a challenge when it comes to the provision of mobile banking solutions for customers as they do when it comes to a branch network, for instance.

Positive News Flow

Of course, the deal is also good news for Monitise. After the company experienced the major disappointment of a key shareholder and customer, Visa, deciding to reduce its stake in the company, it has responded very positively. For example, Telefonica, Santander and Mastercard have all become equityholders and this should provide investors with greater confidence in the viability of the company as a profitable entity. And, with another big-name brand now being a customer, things seem to be progressing relatively well for Monitise.

Potential Catalyst?

While shares in Monitise are firmer today (up 3% at the time of writing), the deal with Virgin Money is unlikely, on its own, to cause sentiment in the company to change considerably. In this respect, then, it does not appear to be a game changer.

However, the deal with Virgin Money is nevertheless extremely positive news for Monitise and provides yet more evidence as to the potential that it has as a business in the long run. Although branch networks still matter in banking, there is a definite shift taking place that means their importance in the coming years could fade somewhat, with mobile banking set to be the most likely replacement at the present time.

Looking Ahead

Having fallen by 53% since the turn of the year, shares in Monitise have thoroughly disappointed in 2014. In order for sentiment to shift considerably, the most likely catalyst could be profitability. For example, we know that the mobile payments solution marketplace has huge potential to grow at a rapid rate in future years, we also know that Monitise’s offering is a desirable one (with the Virgin Money deal providing further evidence of this), however what we do not yet know is whether Monitise can consistently turn a profit.

In order for its shares to significantly move upwards, it is likely that Monitise will need to move into the black when it comes to its bottom line. With this due to take place post-2015, the next year may require a degree of patience from investors in the company and, as a result, it may be worth waiting before buying a slice of Monitise.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.