By Matt Scuffham and Noor Zainab Hussain
LONDON (Reuters) - Spanish bank Santander (MC:SAN) and British mobile banking software provider Monitise (L:MONI) have formed a joint venture to invest in financial technology businesses, they said on Wednesday.
The two companies will provide up to 10 million pounds of capital each over two years depending on what opportunities are identified, they said.
Traditional banking models based on services within branches are being challenged by the rise of branch-free, paper-free, so-called fintech start-ups, offering services accessed by mobile phones or tablets.
Santander has embraced the opportunities presented by fintech more enthusiastically than some rivals, with its Chairman Ana Botin stating she wants it to be at the forefront of developments in financial technology. The bank last year set up a $100 million fund to back fintech startups.
The deal with Monetise could help the software firm become profitable by 2017, analysts at UBS said. Shares in Monitise, which have fallen by 80 percent over the past year, were up 9 percent by 1015 GMT.
"We continue to be encouraged as Monitise executes and deepens its relationships with banks," UBS said.
As well as taking a 50 percent stake in the venture, Monitise said it would benefit from a multi-million pound upfront licence fee and ongoing revenues expected to be generated.
As part of the deal, fintech companies can use Monitise's recently launched cloud-based platform, which has been viewed by analysts as key to reigniting its growth
Founded in 2003, Monitise linked banks and mobile operators, building a business capable of handling more than $101 billion a year in transactions. However, it has faced tough competition from the free mobile payment systems offered by Google Inc (O:GOOGL) and Apple Inc (O:AAPL).
It warned in January that revenues would not be as high as expected this year and its losses would be greater than analysts had expected, causing its shares to fall by more than 20 percent.
Monitise put itself up for sale at that time, blaming changes in its business model for its third revenue warning in a year.
However, two months later it said it was no longer looking for a buyer and its founder and co-CEO Alastair Lukies would step down, handing over full executive control to long-time Visa executive Elizabeth Buse.
The joint venture will be led by Julio Faura, Santander's head of R&D and innovation, and chaired by Lukies. It will operate from London.
Santander paid 33 million pounds for a 5 percent stake in Monitise last November.
($1 = 0.6371 pounds)