At first, payments players were wary of the LevelUp mobile-pay system, but the startup behind it is fast building relationships with the very companies it could potentially disrupt.

SCVNGR’s LevelUp recently began working with large payments-industry players like Merchant Warehouse and Heartland Payment Systems, adding to its existing partnerships with companies such as Revel Systems, MICROS Systems, VeriFone Systems and POSitouch.

“It makes sense that people were skeptical, because there are big names attached to other mobile payments players out there, between Google Wallet and PayPal and Pay with Square,” says Chris Mahl, chief revenue and strategy officer at SCVNGR.

Another likely factor behind the skepticism is SCVNGR’s deliberately disruptive pricing: the company doesn’t charge LevelUp merchants any fees for accepting transactions. Instead, it makes money on an attached system for attracting new business.

LevelUp’s payment system allows smartphone users to make payments at the point of sale by presenting a quick-response (QR) code in front of a special reader. LevelUp recently added support for Near Field Communication chips, which are used by the Google and Isis mobile wallets and supported as an option by PayPal.

“Every time you have a new player in the market, there’s always going to be that same skepticism,” says Ben Jackson, senior analyst at Mercator Advisory Group. “Some of the skepticism they face isn’t so much LevelUp skepticism as it is more skepticism about mobile payments … which method will become widely adopted.”

In a little over a year, LevelUp has attracted 3,800 merchant customers and 400,000 end users, Mahl says. Through the partnerships, LevelUp wants to drive the payments ecosystem forward instead of control it, he says.

“The [point of sale] systems and processors that already exist have a lot to bring to the table,” Mahl says. “We think it’s hugely important to add value to all parts of the system rather than take control of them.”

Jackson says the Heartland Payment Systems partnership gives LevelUp a broad exposure across the nation.

“If you can’t beat ‘em, join ‘em,” says Jackson. “LevelUp has an advantage trying to use existing technologies in new ways so they’re not reinventing the wheel.”

Revel Systems, which creates iPad point of sale software for restaurants, needed a bar-code based mobile payment system to meet its clients’ demands for a system comparable to what Starbucks uses, says Lisa Falzone, the vendor’s CEO. Revel is one of LevelUp’s partners, distributing the mobile-pay system to its merchant clients.

LevelUp’s offering is “a massive shift in value proposition,” says Henry Helgeson, CEO of Merchant Warehouse. “We’re no longer just moving money around and facilitating payments, but instead giving discounts and coupons to customers to drive business.”

Merchant Warehouse announced its partnership with LevelUp only a few months ago, but Helgeson says the two companies had been quietly planning for a while how their integration would work.

With LevelUp’s Interchange Zero strategy, retailers pay for customer acquisition and returning customers, but do not pay fees for transactions. Helgeson says merchants accept this business plan.

“Every industry risks someone coming in and giving everything away for free,” Falzone says.

But it’s not a guaranteed success, and it’s not without precedent. Google tried something similar when it launched the Google Checkout online payment system. Google waived transaction fees for merchants that also advertised through its search engine, but the company eventually scrapped that pricing in favor of a fee structure that was nearly identical to PayPal’s.

When Google changed its pricing, some observers expected the entire Checkout service would eventually be wound down. Google sustained Checkout for a few more years before ultimately combining it with Google Wallet, its point of sale payment system.

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