Using your phone as your wallet is a novelty, but it's not so much easier than physically pulling out a few bills or a piece of plastic that you wouldn't have it any other way. At least, not yet. Which is why everyone from Square and PayPal to Google and Apple are all vying to make your smartphone a replacement for your wallet.
Boston-based LevelUp is one of those companies, but fine-tuning its mobile payments technology is hardly the only item on CEO Seth Priebatsch’s agenda. LevelUp, he says, is less about pulling in percentages from payments and more about finding value in helping merchants connect with consumers (and save those consumers money along the way). In other words, there's something more valuable than currency being exchanged in many transactions.
"There are all sorts of things we can do beyond just moving money," Priebatsch tells Fast Company. "Using the transaction as the springboard offers a lot more opportunity for us to make money and for merchants to get value out of it."
The LevelUp smartphone app lets consumers link credit card information to a unique QR code it generates for use at LevelUp businesses. For merchants, LevelUp provides free hardware equipped to scan the codes. The company takes an agnostic, all-encompassing approach to both smartphone platforms and credit card companies, meaning it simply builds software and hardware to support as many consumers as possible. That's a potentially powerful case for adopting LevelUp over Google Wallet, which is clearly meant as a value-added feature of Android phones, or ISIS, the NFC mobile payments venture launching this month that allows for any credit card, brand, or merchant, but is exclusively controlled by a small handful of carriers including AT&T, Verizon, and T-Mobile.
With LevelUp, it doesn't matter whether you're an iPhone-using Visa cardholder or an AmEx aficionado on an Android. The company is constantly adding support for burgeoning technologies--starting today, for example, LevelUp will offer its merchants new in-store scanners that also support NFC in addition to QR codes. That's partly an unabashed vote of confidence in the heavily rumored NFC support for the iPhone, Priebatsch says, though he's not counting on it for the iPhone 5. But it's also a testament to the company's commitment to making the payments process as easy as possible for anyone who's ever thought about making a purchase with a smartphone.
When it comes to betting on the value of transactions beyond mere currency exchange, Priebatsch has put his money where his mouth is. In July, LevelUp dropped its credit card transaction fees which, at 2% of each purchase, was no small chunk of change. And as the major players in the wallet wars' race to the bottom continue to concern themselves with little more than achieving razor-thin margins on card fees, some are following LevelUp's example and seeking creative, nontraditional ways to bring value to merchants. Square, for example, recently began offering a flat, monthly fee for credit card transactions, versus the steeper 2.75% it had previously charged.
Eliminating fees meant LevelUp had to put all of its efforts into a new business model. That's when Priebatsch realized, for all the pain credit card fees caused merchants, it wasn't nearly their biggest pain point. He recently met with an agency that produces work for a top-five food retailer who spends $650 million a year on a multitude of print and digital ads (he wouldn't say which, specifically). But the retailer couldn't track those ads' effectiveness in driving new business. Priebatsch realized there was an opportunity in helping merchants devise and run promotional campaigns that show exactly how many people engage with a particular ad, how many are then driven to visit the store and make a purchase, and how many of those return for another visit.
It puts LevelUp in a position as part payments company, part creative agency. Now, the venture-funded company’s only revenue stream is a cut of the completely trackable sales it generates with the campaigns it designs to win businesses new customers and keep the old ones coming back. By thinking more about interactions than transactions, LevelUp is inadvertently trying to solve problems that aren't exclusive to payments companies, and that's what Priebatsch thinks will give the company its edge.
"Suddenly the 3% you can save on interchange is nothing compared to the revenue you can produce by effectively allocating $650 million of ad spend," he says. "We want to optimize that part of the pie. That’s where we make money, and that's where we want you to make money."