Visa has announced it is assessing whether to sell its investment in mobile payment software developer and transactions processor Monitise.

Visa formed an alliance with Monitise in 2009 to provide Visa with mobile platform development services. The agreement runs through 2016. As part of the agreement, Visa made a capital investment in Monitise and received 14.4% of the company's equity. Over time, Visa has reduced its ownership to 5.5%. Visa has now contracted with J.P. Morgan to evaluate its options for its ownership stake in Monitise.

According to Visa, the reduction in ownership is consistent with Visa’s investment practice to seed emerging players and, over time, reduce such investments. Visa has also announced it intends to continue increasing its investment in its own in-house mobile payments development capabilities and reduce its use of external resources for those purposes.

Visa’s announcement caps off a weak year for Monitise in the stock market (down 59% for 2014 as of September 18). Does the market know something or is this a natural development in the growth of Monetise, as Visa has indicated?

First let’s consider Monitise’s business results to date:

Among the positives:

• Revenue growth of 105% CAAGR over the past five years to the FY year end June 2014
• Transaction volumes has grown 3,300% over the past four years to 4,000m per year to year end June 2014
• The number of registered users has grown 3,000% over the past five years ended June 2014
• Numerous partnerships and markets entered over the past five years around the world. The majority of these partnerships are with tier one players in their respective markets, providing uplift to Monitise in its quest for adoption

Among the challenges:

• Monitise is still loss-making
• It recently changed its business model from a mobile payments platform provider model to a subscription based “content” enhanced mobile payments provider. Here content means the ability to provide sales and marketing content to users and to analyze transaction data in support of sales and marketing campaigns
• Mobile payments remains a demonstration project at most banks and businesses. It has not yet turned into a driver of revenues or profits (for tier one global enterprises)

Where Monitise is going and why Visa is reducing its relationship:

Monitise is moving into more intimate relationships with merchants and enterprise clients by providing them with content enhanced services. Monitise has made this initiative very credible by:

• Starting a partnership with IBM in August 2014, which leverages IBM’s IT development and services staff also its cloud delivery infrastructure. This partnership means Monitise can scale delivery as much as the market might require
• Hiring senior staff from Visa to manage and grow Monitise’s business in the U.S. and Europe
• Partnering with Mastercard (including an equity investment from Mastercard) to drive emerging market growth

These moves create a direct conflict with Visa because Visa wants to deliver content to its clients and Visa is a direct competitor to Mastercard. To succeed, Monitise needs to continue its aggressive acquisition of users and transactions. If Monitise can establish content leadership in the emerging markets, it will have created a unique and highly valuable asset.

To create that content leadership, Monitise needs to do more than acquire users and transactions, it needs to understand the mind of the emerging market consumer. There is no one emerging market consumer profile. Each market has unique characteristics, economics, and tastes. Creating content that can adapt to multiple markets requires extreme discipline at the taxonomy creation stage, and extreme autonomy at the individual country level. Monitise will need to partner both aggressively and effectively to accomplish that.