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Are Banco Santander SA And Monitise Plc The Perfect Partnership For Your Portfolio?

Over the last few decades, banking has experienced something of a revolution. While in the past, a bank account was only available in a branch and to open one you needed to meet with the bank manager and endure a rather long-winded process, the advent of telephone banking was a major step change in the provision of banking services. Suddenly, checking your balance and making payments was much easier and could often be done through an automated service. And, with the internet now being an integral part of our lives, payment and banking solutions have progressed even further, with mobile apps now allowing you to bank on the move.

Technology

Of course, customers have benefitted hugely from mobile banking apps, with them being convenient, secure and easy to use. However, for the technology companies behind them, it has been a much more difficult ride. For example, Monitise (LSE: MONI) (NASDAQOTH: MONIF.US), which has major banking clients such as RBS and HSBC, is yet to make a profit. In fact, it is expected to remain loss making at the bottom line for the next two years and, while it has a new CEO and a new strategy, its future continues to be rather uncertain.

Clearly, Monitise has an excellent product that is hugely successful. However, turning a great product into a great business may prove to be much more of a challenge and, while there is undoubtedly further potential for increased uptake in mobile banking apps, the technology is relatively widely used right now and so, it could be argued, that if a profit is not being made at the present time then it may prove to be elusive moving forward. And, with new technology bound to be coming into play over the medium to long term, just as mobile apps have replaced telephone banking, mobile payment solutions are unlikely to be the zenith of personal banking products.

Traditional Banking

As a result, it could be prudent to invest in the banking sector, rather than the technology behind the current cutting-edge technology within it. As such, buying a slice of a bank such as Santander (LSE: BNC) (NYSE: SAN.US) could be a wise move. That’s because it is forecast to increase its bottom line by 12% in each of the next two years. And, while the FTSE 100 has a price to earnings (P/E) ratio of around 16 at the present time, Santander trades on a P/E ratio of just 12.7 and this indicates that there could be a substantial upward rerating on the cards – especially since Santander is expected to grow its earnings at a faster rate than the FTSE 100.

Looking Ahead

So, while Monitise does have a great product, it is still some way off being a great business. As such, it seems to be sensible to buy a highly profitable bank such as Santander due to its superior performance and appealing future potential.

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Peter Stephens owns shares of HSBC Holdings and Royal Bank of Scotland Group. The Motley Fool UK has recommended HSBC Holdings. 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.