Up until now, small merchants everywhere have had a tumultuous relationship with their credit card systems. They have known that while accepting credit cards increases the number of people and sales they can take in (from people like me that rarely carry cash), but that each swipe would cost them a percentage of the transaction.
The common charge for a transaction put on plastic is 2%-3%. And even when mobile payment companies like Square, PayPal and others entered the scene to reduce the hassle and hardware needed to take credit cards, they were still charging between 1.2%-2.2% per transaction.
But now, LevelUp is taking out that charge to merchants in a new program it is calling "Interchange Zero." This program is designed so that if both the merchant and the customer are using the LevelUp service, the transaction will be completely free.
This is a rather smart way for merchants to encourage and promote the LevelUp service to the dozens, hundreds, even thousands of people they interact with -- making them ambassadors of the brand, if you will. And could help boost LevelUp's user base really fast.
Accepting credit cards costs merchants in excess of $50 billion every year and usually leads to consumers paying more per item so that merchants can recoup the cost of doing business.
"The process of moving money is now becoming a commodity, a de facto service. We're entering an era in which merchants should get -- and will eventually only pay for -- value above and beyond the transaction," said Seth Priebatsch, CEO of LevelUp. "LevelUp is skipping this 'race to the bottom' happening between the major payments companies and leading the way by providing real value beyond the transaction."
This is quite a bold move for LevelUp, since, as Priebatsch is aware, once you cut out the fee, you can't bring it back without serious backlash so it will likely be gone for good.
Since launching, LevelUp has signed on at least 3,000 merchants, and now has 200,000 active users spending about $2 million a month.
While the company started out making 2% per transaction (Square charged 2.75%), the model moving forward will be to sell the service to merchants with a loyalty package that helps customers return time and time again.
One of the promotions it points out for merchants is a $2 off purchase model where LevelUp retains 35 cents for every dollar off and it encourages customers to keep returning and using their LevelUp to track rewards and loyalty points. Thus far, 98% of LevelUp's customers are using loyalty perks.
LevelUp is a part of the parent company SCVNGR which is backed by Google Ventures, Balderton Capital, Continental Advisors, Highland Capital and Transmedia Capital.
How else LevelUp differs from the competition
LevelUp uses a QR-code to help consumers instantly pay for their food at a restaurant while tying in loyalty specials so that merchants reward their most diligent patrons.
Matt Kiernan, marketing director at LevelUp, chatted with me about how many companies are trying to use technology to make the checkout process easier for consumers while learning more about them.
"When customers have a quick and easy way to do business with a vendor they love, they end up shopping their more and spending more money," Kiernan has found. "Wait times are going down and the amount people spend is rising when these simple tech additions are incorporated."
Merchants also have the option of renting the scanner for $25 or they can download an app for their mobile device for free that also reads the QR code. This make a faster check-out option much more affordable for small businesses and vendors that are mobile themselves.
There are also some fun bells and whistles on the merchant scanner, if a company wishes to use it. They can customize the colors that flashes when the code is successfully scanned. LevelUp is also eyeing the POS side of retail/restaurants.
"We are hearing great things from the more than 2,500 companies using LevelUp and they are also asking how they can streamline their whole checkout process," Kiernan touted.
LevelUp certainly isn't alone in its desire to advance the POS systems that usually cost a lot of cash up front, are confusing to use, take a long time to get repaired and are not mobile in the least.
San Francisco's mobile payment service Square, founded by Twitter's Jack Dorsey, first tackled the credit card machine by creating a an iPhone accessory to mobilize, digitalize, and simplify what is needed to complete a credit transaction and now it is expanding its reach by re-thinking the whole POS for businesses.
The new Square Register, unveiled earlier this year, extends the credit features to now accept cash payments, lets merchants create list menu items, and tracks the history of customers' purchases.
Currently, nearly 75% of U.S. merchants are in the market for tablets and tablet apps to incorporate into their business and more than half of retailers are gearing up to use a mobile POS device within a year to 18 months, compared with a slim 6% now.
The status quo POS systems are often cumbersome in size and pricing -- many cost in the thousands per year to install and maintain, while Square has the attractive price tag of $0 and just charges a percentage fee based on the number of transactions logged into the system.
Square, which makes its money by collecting transaction fees, has helped merchants process sales for $4 billion worth of goods — double what it announced late last year. More than 1 million people are able to accept credit cards with Square. Their average purchase is $75.
Founded at the tail-end of 2009, Square has veiled exceptional growth year-over-year in the volume of sales transactions. By the close of 2011, the tech startup boasted that it was clocking in $2 billion in sales and now the company says it is processing $4 billion in payments per year.
Earlier this month, LevelUp announced an iPad POS system with Revel Systems (a cloud-based POS system) so that retail, restaurant, and other merchants can now easily accept mobile payments via LevelUp with no additional set-up or equipment required. The fully integrated POS system debuted at Palo Alto’s Tava Indian Kitchen a few weeks ago and is expanding through the company's network.
“We believe our open API and our partnership with LevelUp is a win-win for both businesses and consumers alike,” said Chris Ciabarra, Revel’s Chief Technology Officer. “And while other solutions on the market are keeping a tight grip on their POS ecosystems and building everything internally, Revel Systems is committed to building open commerce and a shared environment that’s ripe for a multitude of beneficial partnerships for merchants - like this new integration with LevelUp.”
LevelUp is confident that more consumers will find a greater level of personalization, savings, and security in mobile payment services.
Since LevelUp, and others, offer a pin code option so that each time you are about to complete a transaction, you have to enter a unique pin to insure that someone can't just use your phone for fraudulent purchases, it is technically safer to use than your wallet full of cash.
With mobile-payment technology in the United States is still in its infancy, we can expect credit card companies and the mobile payment service will spend the next year or so educating people and working with one another to create better protections to avoid fraud when moving toward convenience -- especially since everyone is expecting Visa to deliver its own proprietary payments system very soon.
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