Wednesday, August 22, 2007

Can You Make Money From Mobile Banking?

We were getting upset that our questioning of Monitise's pre-floatation quotes had dropped to #6 on the Google results page for 'Monitise', when suddenly as if by magic their financials came in. Following their AIM floatation their share price dropped about 20% in the first week of trading whilst the stock markets were still bouyant, before settling into a slow slide to their current position at about 60% of the flotation price in somewhat harsher climes - so what does this mean for the profitability of mobile banking, and financial servies beyond that?

Looking at the financials breakdown PDF, those "12m" customers they had (which should be "33m" now apparently - they never did clarify their real number, to my knowledge) have contributed to £500k in revenue in the last year, alongside consultancy revenues and "the intial flow of business from overseas". That'd make 4p/customer if we ignored the consultancy and assumed the 12m customers. I'd be inclined to suggest they have fewer customers but most revenue came from consulting - it would be very interesting to know more but the detail just isn't there, at least for a non-accoutnant such as myself.

This does raise a valid point on mobile banking - who should pay? I can't see Monitise's charge of 20p/balance to customers, on top of their operator data costs, being very appealing which leaves only the banks funding it as they fund their web sites, to cut customer interaction costs in the long run. That means either up-front consultancy fees to customise the service, or some sort of per-usage payment from the banks based maybe on cost savings (a very vague concept... I wouldn't like to be a software vendor drafting a contract based on that). These revenues suggest that Monitise cannot be making any real money on the customisation for the banks (with over 5 banks live now, that's be under £100k per bank - peanuts that couldn't scale to justify their valuation), but are they getting any per-user fees? We may never know, but banks are not known for their generosity (outside of the bonus pools of course).

Looking at Monitise's longer term position, I'm slightly stuck:
"As a result of the demerger and capital reorganisation of the Group, a merger reserve of £33.0 million and a reverse acquisition reserve of £(25.3) million have been created."
By my understanding that means they spent £25.3m to get a fairly poor MIDlet, a back-end integrating into Link and some sales work (having used the system, I am guessing/hoping they spent £25.29m or more of that on the backend and the sales). This leaves them with about £8m, which would mean revenues had better head north soon else they're going to be doing some strong cost restructuring soon (parent Morse pumped £8.8m into Monitise in 2007 alone). But I know very little of financial reports so this could misrepresent their position and everything may be peachy... I'd love some clarification from someone at the company?

It's very interesting to see these results, albeit an early set based on only a year or so with the earliest banks to launch. If I was a cynic, I would say that Monitise are busy proving that there is little to be made from charging bank customers 20p/balance with no backup revenues - but it does leave as an open question where money is to be made by mobile application developers. Can you make money when you have to pay off the multi-million early investments being thrown at these start-ups? I really hope Monitise proves that you can (writing a good mobile client might help - their proclaimed "consumer-centric product roadmap" must be a new thing introduced after the client I saw).


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