By Amy-Jo Crowley

LONDON (Reuters) - British payments technology company Pockit is in talks to take control of UK challenger bank Monese’s consumer arm, two people familiar with the matter told Reuters.

Under the proposed deal Pockit, which is backed by Telegram, Bolt, and Spotify, will buy Monese for a nominal sum and inject capital into its direct-to-consumer arm to boost regulatory capital and help finance an integration with Pockit, one of the people said. The talks are advanced but not finalised and may still fall apart, the person said, speaking on condition of anonymity because they were not authorized to speak publicly.

Monese declined to comment. A representative for Pockit didn't respond to a request for comment.

London-headquartered Monese, which has been backed by HSBC and was reportedly worth more than 1 billion pounds ($1.31 billion) in early 2020, in May split the business into two standalone entities: its consumer banking arm Monese, and its corporate business, called XYB.

Founded in 2015, Monese has more than two million customers worldwide and targets consumers who struggle to access high street banks due to a lack of credit history.

Sky News reported that Estonian venture capital firm Tera Ventures was backing the plan to spin out Monese’s consumer arm as a standalone entity, but that agreement fell apart in August, the people said.

Tera did not immediately return requests for comment.

Many challenger banks have struggled to grow and make profits in recent years. Before the company split, Monese reported a 30.5 million pound loss in 2022, up 70% on the year, according to Companies House filings.

Monese last raised funding from investors in September 2022 including $35 million from HSBC as part of a Series D round.

Monese was in talks in 2020 to raise 100 million pounds in funding at a valuation of 1 billion pounds, the Financial Times reported at the time.

($1 = 0.7646 pounds)

(Reporting by Amy-Jo Crowley.; Editing by Tommy Reggiori Wilkes, Anousha Sakoui and Chizu Nomiyama)