Consumers are notoriously reluctant to choose new payment habits. This week, LevelUp and 20 retailers forced the issue by taking away their choice.
The "credit card diet," which took place Feb. 26, involved 20 retailers in Boston and Washington D.C. They all refused credit cards for one day.
For Rosie's Café in Lowell, Mass., it was business as usual — the merchant dumped credit cards months ago, shortly after it began accepting LevelUp payments in October. The LevelUp system does not charge for payments; the company behind it instead makes money through a loyalty campaign it offers to merchants.
"When I look through our books from before we started using LevelUp, it's amazing to see how much money we were spending to swipe credit cards," says Rose Surprenant, owner of the café.
Since launching LevelUp in the store, about 50 people, or about 30% of the café's customers, have begun using the app. The Diet day attracted 100 people to the café, and 10 to 15 said they would sign up for LevelUp after seeing it in action, she says.
"We're a local coffee shop with a lot of regular customers, so our customers love earning rewards for their loyalty," Surprenant says. Customers get $1 off the first time they use LevelUp at Rosie's Café, then after spending $60 customers get another $5 off.
"The challenge is how do you make a vast majority of a merchant's user base shift from a payment method they are used to try something that's better," says Seth Priebatsch, chief ninja (CEO) at SCVNGR, the company behind LevelUp.
Sweetgreen, another of the diet-day's participants, is one of the first merchants to use a white label version of the LevelUp app, says Nathaniel Ru, sweetgreen's co-founder. LevelUp "is easier and faster in-store than paying with credit cards," he says.
With LevelUp, sweetgreen allows 1% of every transaction at sweetgreen to go to a local charity that focuses on healthy eating.
"For us we've always been about going beyond the transaction, creating a customer experience," says Ru.
This approach is important because older payment methods such as cash and plastic cards are not broken, says Priebatsch.
LevelUp's Diet day forces consumers to consider a new payment method that they might not have normally felt a need to consider.
"The Credit Card Diet should at least raise some awareness," says Dave Kaminsky, senior analyst with Mercator Advisory Group. "It's not going to revolutionize the payment system overnight but it'll get LevelUp a good amount of new customers."
Merchants participating in the event did not accept credit or debit cards throughout the day. Instead an employee helped customers setup LevelUp before they got to the register. Participating merchants still took cash.
"It's two minutes of investment to sign up, but the payoff is worth it," says Priebatsch.
LevelUp's interchange zero pricing charges merchants for an attached loyalty system for attracting new customers instead of charging fees for accepting transactions. This deliberately disruptive pricing made payment players wary in the beginning but over time LevelUp convinced major payments companies to partner with it. In November LevelUp announced it reached 500,000 users.
While LevelUp seems to be warring against the credit card companies, Kaminsky says the app is still entirely backed by payment cards. Users link a bank-issued card to the app, which then displays a quick-response (QR) code to be scanned at the point of sale.
Because LevelUp and its merchant partners are still small in number, the credit card companies aren't going to take notice, Kaminsky says. "If Wal-Mart, Target and McDonald's stopped accepting credit cards, you'd see the payment card companies responding," he adds.
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