LevelUp, the mobile payments solution from the team behind SCVNGR, today announced that they are dropping all transaction fees associated with purchases made through the service. That means that unlike on other platforms, where fees typically run from 2.69 percent (Pay Anywhere) to 2.75 percent (Square) per transaction, merchants using LevelUp as its mobile payments solution won’t be charged anything just for accepting payments. It’s a bold move, but one that LevelUp believes it’s in a unique position to make since it has such strong loyalty and customer acquisition solutions to drive revenue.
For LevelUp the decision to skip the race to the bottom currently occurring in fees associated with mobile payments just made sense, since the vast majority of its customers were signing up for its subscription-based loyalty and customer acquisition plans anyway, which charge merchants based on how many new clients or how much repeat business they bring in.
“We did some research with our merchants, and we found that merchants who had loyalty campaigns were seeing average transaction amounts go up seven percent, and their customers that use LevelUp were coming back 20 percent faster,” said John Valentine, LevelUp’s VP of local sales in an interview. “Over 99 percent of our merchant have a loyalty campaign, and about 70 percent have an acquisition campaign, so they’re very popular with merchants.” Based on those numbers, LevelUp felt it could afford to ditch the fees and focus on growth in those revenue-generating areas.
The removal of per-transaction fees should also be a big help for LevelUp in terms of selling its services to larger scale companies than their competitors are currently targeting. Per-transaction fees are fine for independent owner/operators and small businesses, since their sales volume isn’t that high. But giving up a sizeable chunk of every payment made via mobile for franchises and enterprise customers could scare off those larger potential clients. And that’s a key target demographic for LevelUp, which is looking at bigger fish in addition to expanding its geographic reach.
“We are expanding quickly to bigger businesses,” Valentine said. “We’ve got an enterprise team…they’re meeting with all the big brand and driving large-scale adoption of LevelUp, and they’re seeing good results from that.” That focus differs considerably from Square’s primary goal, which is to reach out to small individual merchants who otherwise wouldn’t accept credit card payments. LevelUp is also focused on a solution that lives on a user’s phone, bypassing the day-to-day use of payment cards altogether. While Pay With Square recently launched to accomplish the same sort of thing, LevelUp’s aggressive pricing for businesses should help it make evangelists out of the places where customers shop the most.
No fees is also an attractive incentive for partners, which LevelUp is adding at a rapid clip. We covered its partnership with iPad POS supplier Revel, and Valentine told us that there are five to 10 new partnerships in the works that will be ready to deploy soon. These partners are now prepared to go out and help promote LevelUp to their clients, with the added value proposition that its services are now completely free for merchants and businesses to use on the mobile payments side of things.
For mobile payments, this is a considerable step in terms of promoting adoption. It remains to be seen whether other players in the space will follow suit, and Valentine expressed scepticism about that happening anytime soon, in large part because he says no one else has yet been able to demonstrate as much strength in another area like loyalty to justify making transactions a loss leader, which is what LevelUp has done today. Square, PayPal and others have begun implementing their own loyalty solutions, however, so it’ll be interesting to see whether value-add services, and not the transactions themselves, become the primary area of innovation in the mobile payments industry.
