SCVNGR's LevelUp has seen a sharp rise in spending at merchants that use iBeacon, Apple's version of a Bluetooth Low Energy system for detecting consumers and providing location-based offers.

The mobile payments company deployed iBeacons at 50 merchants in early May, and within 30 days, the businesses noticed an average 22% increase in mobile payments volume on the LevelUp platform. And the rate of transactions from customers who use LevelUp after more than 30 days of absence increased 63% following LevelUp's iBeacon rollout.

"[iBeacon] is not really for completing the payment (at least not in our implementation) but is an awesome accelerant and enhancement to the payment experience," says Seth Priebatsch, chief ninja (CEO) of LevelUp, in an email. "Because of its flexible range, we can use it to create new consumer interactions, like reminding a customer to pay with LevelUp when they walk in the store or notifying them about the credit they have waiting or even prompting them to get something extra because they're so close to completing a loyalty progression."

Based partly on the success of the early deployments, LevelUp plans to install iBeacon technology more broadly with a goal of 1,000 merchants by September. LevelUp's payment system is currently used at 14,000 merchant locations and 1.5 million consumers.

Any merchant that uses LevelUp is eligible to receive an iBeacon device. The iBeacons were free for the pilot participants, but will be $50 for new merchants or additional locations for the pilot participants. LevelUp charges a 1.95% transaction fee for mobile payments.

LevelUp has bolstered the technology behind its app several times in the past year. It has also added connected app technology, enabling merchants to accept LevelUp payments in more environments than the point of sale. LevelUp has steadily updated its hardware to improve the experience at the point of sale, and recently added a "distress signal" button for consumers having trouble making a payment.

Apple introduced iBeacon late last year in its iOS7 mobile operating system.  The technology, called Beacon by other vendors, uses a Bluetooth signal to detect when a consumer has entered a store or a specific part of a store. It communicates with an app to enable payments and provide offers and alerts.

LevelUp sees iBeacon as a way for brick-and-mortar merchants to provide targeted communications the way e-commerce sites do.  Although LevelUp has experimented with Near Field Communication for contactless payments, it now sees Bluetooth as the more practical technology.

"iBeacon is exciting because it's adding a new value to the merchant/consumer interaction, whereas NFC is solving a non-existent problem and has too short range to create new interaction styles," says Priebatsch.

LevelUp's app invites consumers to spend at merchants by providing discounts and offers. When it's time to pay, the app displays a QR code that represents the consumer's linked bank or credit card account. The merchant then uses a scanner to read the code and the system delivers a digital receipt.

These offers are typically a discount to new consumers, or a reward for repeat business. By adding iBeacons, LevelUp can match its offers to the consumer's location as well.

"We can even use the longer range to catch a user as they're walking by their favorite place … and invite them in with a special discount," Priebatsch says.

Even given Beacon's aggressive adoption by companies such as PayPal, shopkick and Apple, the technology still poses challenges, says Gareth Lodge, a senior analyst at Celent.

"For example, my Bluetooth is generally turned off," he says. "Anything I don't need regularly is turned off…so while it's another weapon in the retailers' armory, it's not a universal solution."

If more merchants deploy Beacons, the technology may also become a victim of its own popularity. "I can imagine a future where walking through a mall, and my phone faces a barrage of messages," Lodge says. 

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