Monitise: Alastair Lukies

Alastair Lukies is a serial entrepreneur. Having co-founded a groundbreaking intranet news service, the former rugby hooker has turned his attention to the mobile banking world

Alastair Lukies has performed the seemingly impossible by getting most of the UK’s major banks and all of its major mobile operators to work together and play nicely. His mission? An application for mobile banking which runs no matter what network you’re on or who you bank with… and with MONILINK he’s almost there. Following three years under the wing of Morse Plc, the tech giant that incubated Monitise, Lukies fled the nest in August last year.

He’s since been taking mobile banking worldwide through joint ventures and licensing, striking deals left, right and centre, reaching out to the non-banking population and gaining recognition from the World Economic Forum. His board comprises a number of banking, technology and telecoms heavyweights and, until his appointment as a minister, Lord Digby Jones sat alongside them. All this from a 108-person, AIM-listed firm in the City of London with a 34-year-old CEO.

THE BEGINNING

How did you get into business?

I’m one of a good chunk of entrepreneurs who learnt because they had no other choice. I left school at 16 to be a rugby player. When my father, a Lloyd’s of London name, lost our farm and quite a serious injury ended my rugby career [he broke 17 bones in one leg], I joined a local publishing firm where the chief exec really threw me at everything. I think publishing is about as good a bedrock as you can get if you can understand what an audience wants and a business model to keep that sustainable – that constant battle between editorial integrity and advertising revenues. There’s that dark side and force in every business. The way my father recovered from adversity was also a real inspiration to me.

What happened next?

After that I went to ICM and set up their Commonwealth Games hospitality division in Malaysia. We grew the business 300% in a nine-month period at a time of economic downturn. A few years later I was approached to join the start-up team on ePolitix, the intranet news service in Westminster built off the back of House magazine. Someone said to me afterwards, what are you going to do now that will be as challenging as getting 659 MPs online and convincing 380 organisations to move their lobbying online? So I set up this company, which is about as tough as it gets. I like a challenge.

How did Monitise come about?

I met Steve [Atkinson, co-founder and chief architect of Vodafone] in 2002 when Vodafone was lobbying a lot over 3G licence laws. He could see this emerging market of the mobile being used for much more than voice and text, and I was able to use my contacts from ePolitix to pick people’s brains and ask: “If mobile was going to become a new channel for banking and payments, how might that happen?”

The great thing about ePolitix was that, in all cases, the person that does the communication to government is the CEO or the chairman of the company. So I built up a reasonably extensive list of high-level contacts. If you look at my advisory board and my non-exec board, for a company of our size, we would be the envy of most FTSE 100s. One thing I’ve learned from them is you’ll only retain your contact list if you use them sparingly and effectively.

How achievable did it seem to you?

Our technology’s not revolutionary, it’s really simple. We test it on my mum. In terms of how do-able it was, all we’ve done is take an existing infrastructure – LINK, the ATM network (now VocaLink) – and mobilised it. We get revenue from the bank when a customer uses the service and commission from the mobile network when someone tops up a phone.

What would happen if someone nicked your mobile phone?

Unless you’ve written your pin on the back of it, no one can access MONILINK. Steve’s a technical genius, he’s built lots of telecoms platforms and he’s an expert in security, which is inherently important in what we do. It’s a secure, dedicated application which has encryption layers and uses a GPRS communication mechanism.

THE CHALLENGES

What challenges have you faced?

The biggest challenges have been political ones. All our key partners – banks and operators – no matter what the logic of a shared platform, the economies of scale, the fact a consumer can access the service no matter which bank they’re with, which operator they’re on or what handset they have, everyone wants to differentiate. Every bank asks the question: “Shouldn’t we just do this ourselves?” So it’s been a real challenge explaining to people, just as you get with the ATM network, that it makes more sense that a consumer can walk to any ATM and get cash out. We’ve had to hold our nerve a lot.

How did you manage to convince the banks and the operators to go for a collaborative approach?

Without being too self-indulgent about it, I think that’s what we should be most recognised for; our tenacity and our commitment to logic. We are great believers in what we’re trying to do. We’re very passionate about it. I think we’ve also been pretty smart at not trying to over-hype or over-sell.

Why did you decide to go along the corporate venturing path and why did you choose Morse ?

This is a reasonably new approach but one that I think will be taken up more and more. When you’re building something which takes a lot of investment, incubating and scaling up, venture capital is not the way to go. We needed a company that was prepared to back us for the mid to long-term. So we said, “We’re going to need at least five years’ funding here, how can we find a partner that’s prepared to come on that journey with us?”

We approached a number of companies in the Morse category and it was just their DNA really. I think it also gives them a low-risk punt. Let’s say a corporate venturing firm invests £2m in a business, as long as they’re prepared to speak to their customers about that innovation, that can be a very effective £2m spent on PR and marketing alone.

What were the main benefits of this approach?

Immediately you have a Plc balance sheet. You go off to talk to a bank and you’re Al Lukies who looks 12, and Steve Atkinson who’s a nutty professor, and you’re working in a shed in a garden in Richmond, banks don’t take you very seriously. You turn up and you say we’re part of Morse Plc, a £350m market cap company, who’s already ticked all the procurement boxes, it makes a huge difference. So we were able to negotiate deals with banks and mobile operators as part of a bigger entity. Also some of the big costs to a small business, things like IT infrastructure and office space, go away. Corporate venturing can be enormously valuable. I’m a great believer that 10% of a big number is much better than 100% of nothing, and actually two plus two in the case of corporate venturing can equal 1,000.

THE DE-MERGER

Why did you decide to de-merge last summer and what led to it?

After three years, both parties felt the business had proven itself, the technology was incubated, scaled and ready to go. But there was increasing pressure on Morse from shareholders to start to demonstrate the value, so we decided to separate. Rather than sell Monitise, which we could have done very easily at the time, for let’s say £40m which is the market cap today, and then in two years’ time Monitise becomes uber successful and worth £2bn and the shareholders have missed out, we thought let’s give them the opportunity to decide. So Richard Lapthorne [chairman of Morse] came up with the idea of a tax-free de-merger, where we issued one share in Monitise for every share in Morse.

At the same time that we de-merged onto AIM we did a placing of new shares and raised £21.4m working capital to take us through to break even. It’s quite a clever transaction, I think only about a dozen of them have been done before.

What other products are coming?

At the moment you can check your balance and statements, move money in between your own accounts and top-up your phone. Soon you’ll be able to do a same-day payment to someone else, as well as things like paying for the congestion charge and topping up your Oyster card. VISA has also chosen us as its mobilisation partner for a variety of products. We envisage in the near future you will be using your mobile phone like a VISA card for online shopping. We expect to have a physical service live early this year.

Which banks are currently offering the service?

In the UK: RBS; NatWest; Alliance & Leicester; First Direct; and HSBC. At the moment we’re acquiring about 1,500 registrations a day. We’re hoping to sign the rest up this year.

EXPANSION

How are you expanding internationally?

We have two models: in a country such as Germany where we don’t believe we’re best placed to run the service because of language barriers, we license our technology to someone else – T-Systems, in this case. Monitise is also working with other companies, including BT Global Services, in about 15 other countries. In strategic markets such as the US we go for a more organic model where we’ll invest our own capital, staff and time. We’ve just done a joint venture with Metavante Corporation in America, the VocaLink equivalent that connects into 8,600 banks in the USA, which went live in December.

You’re also looking at going into developing nations?

We’re increasingly involved in the developing markets, we’re looking at microfinance – remittances, cross-border payments – we’ve got some really good pilots planned in Uganda, Pakistan and India. Four billion people on the planet don’t have a bank account, that’s not because they don’t want one, it’s because the banks haven’t really invested in the infrastructure to reach out into those rural communities. Two thirds of the four billion live within walking distance of a mobile network. So to us it’s just crazy that we can’t integrate the two somehow. Previous winners for the award we received from the World Economic Forum (Technology Pioneer 2006) were Google and Yahoo!, so it’s an amazing achievement. We also won The Banker’s Innovation Award in 2007.

Has your age ever helped or hindered you?

Both, definitely. Where it helps is it encourages people to underestimate me. On the other hand, the banking fraternity has historically been an environment where you have to be a grandfather before you’re taken seriously. The first thing you do if you’re a young entrepreneur, particularly if you’re AIM-listed, is get yourself an advisory board of people that have been around and done it who can advise you impartially. Anyone at my age who thinks they can take on all this stuff alone is setting themselves up for a fall.

What advice would you give to entrepreneurs?

The first one is a sporting analogy. Only you know how hard you train, so don’t look for other people to rub your back and say you did a great job today. Don’t expect everything to fall into place if you’re not going to put in the long hours. Second one is be humble and prepared to dilute. If you try and retain everything you absolutely will fail, so being prepared to share your load, and therefore the upside, is critical.