BOSTON — LevelUp, a mobile payments provider known for its playful office culture — and a CEO who prefers to be called a chief ninja — may need to mature as its competition gets serious.

LevelUp "will struggle to not be engulfed by the noise from newcomers to mobile payments with significantly larger [research and development] and marketing budgets than LevelUp will ever have," said Nick Holland, the retail payments practice lead at Javelin Strategy and Research.

But the company, which is legally named SCVNGR, has a plan. And its plan doesn't require its executives to throw out their Nerf guns or erase the graffiti from its office walls.

LevelUp is betting big on data. Its main product is a mobile payment app that tracks the number of times customers visit a merchant and how much they spend. The app provides rewards to shoppers for reaching certain milestones, such as spending $50 in cumulative purchases at a particular merchant. Since its launch in March 2012, LevelUp has attracted more than two million consumers and 14,000 merchants.

The information LevelUp's app gathers can be viewed by merchants using LevelUp's analytics dashboard, which mixes in useful data with "Fun Facts" that have less obvious value. For example, the dashboard can tell merchants their most popular customer name. "The information here may not be as immediately beneficial…but will get you brainstorming about what data we can, and are happily able to generate for you," LevelUp said in a Nov. 19 blog post.

On a broader scale, LevelUp is focusing on its white-label business, building merchant-branded mobile wallets for businesses with loyal, repeat customers. These apps have been the biggest area of growth for the company, said Michael Hagan, LevelUp's chief operating officer (aka "chief rock star").

Days after merchants launch a mobile app powered by LevelUp, the app accounts for roughly 20% of their transaction volume, exceeding American Express' 13% transaction volume, Hagan said. Afterwards, that growth continues at a slower pace, with many merchants eventually seeing the app account for 40% of transaction volume and others eclipsing that, Hagan added. 

LevelUp is big in Boston, where the company is based, and a force in Washington D.C. with merchants operating out of food trucks. The company also has a foothold in New York City.

In specific parts of Boston, "the strategy is to introduce a branded white-label app…and then [LevelUp] starts popping up at the more local spots," said Crys Calderon, enterprise data and marketing manager at LevelUp. Once a white-label app sees success, consumers and merchants start spreading the word and others want to join in, she said.

A millennial, Calderon, known also as "The Oracle," came to work wearing a plaid scarf and an athletic jacket zipped up to the top. She wore a tan Carhartt beanie over her pixie-cut brunette hair, and her fingernail polish was chipped. This casual, hipster-esque look is all too common in the LevelUp offices. Ninja/CEO Seth Priebatsch was wearing his signature neon orange hoodie. Other employees giggled at YouTube videos they were sharing on their phones over the low-walled cubicles.

But despite the playful atmosphere, no potential clients decline to work with LevelUp "just because Seth has a weird title," said Hagan (the rock star).

LevelUp employees decide whether to use their traditional or quirky titles depending on who they're speaking to, he said. In front of a straitlaced financial services executive, Hagan introduces himself as COO.

Whether due to its playfulness or in spite of it, the company has won important white-label deals with companies such as sweetgreen, First Trade Union Bank and Dunn Bros Coffee.

"White labeling and providing some of the missing components for the likes of Apple and Google might not be as glamorous, but it could keep them in business," Javelin's Holland said.

LevelUp isn't too worried about the elephant in the room, Apple Pay, which uses Near Field Communication (NFC) for contactless payments.

"Apple Pay is just payment," said Hagan. And "just payment," without some kind of loyalty program or other incentive, won't prompt consumers to change their behavior, he said.

LevelUp has integrated directly into Apple's Passbook, making it a payment option alongside any bank cards a consumer enrolls within Apple Pay. The company also uses Apple's iBeacon technology, which it deployed at 50 merchants in May.

While merchants using LevelUp see a 15% lift in average ticket sizes on 20% of their volume, the iBeacons significantly increase that, Hagan said. Mobile payments spending increased on average 22% within a month of deploying the Bluetooth beacons.

The startup company, which has about 85 employees, works to pivot quickly as new tech emerges and merchant demands change. This has proven beneficial.

Its original plan was to give merchants smartphones to scan QR codes off the screens of customers' handsets, but this left merchants unable to accept payments if their phone lost power or could not connect to a data network.  The company started replacing its merchant QR code scanners in September 2012 for readers that allow NFC payments, and a year later it began distributing standalone readers that integrate with NCR's Aloha system.

To design each new model, LevelUp bought a 3D printer to experiment with different shapes and sizes for its reader. The printer saved the company money on design, since it didn't have to hire an outside manufacturer to test prototypes, said Hagan.

The question of whether LevelUp's growth would level off has been posed before, although it didn't seem to faze the hard-working group. A year after the company launched, LevelUp had built its reputation around providing free incentives to consumers and free payment processing to merchants. But its pricing structure was based on attracting new business to merchants, leading some to wonder whether there was a future for the startup after its clients' new patrons became regulars.

But the company continues to lower fees, pushing its Interchange Zero philosophy. In the summer of 2012 the company dropped interchange fees to instead charge a 40% fee when new customers redeemed onboarding offers and repeat customers redeemed rewards. But merchants preferred a more traditional pricing model, so in early 2014, the company reinstated a 2% fee per transaction.

LevelUp has since begun several campaigns to push its fees lower, including urging users of its mobile wallet to fund payments with a debit card instead of a credit card. In April, the company reduced its fee from 2% to 1.95% by using a transaction aggregation model and analytics.

That same month, the company moved into a new office in Downtown Crossing, on the border of Boston's Financial District. It hired two graffiti artists to paint its walls. There are brightly-colored ants sneaking along the ceiling, two octopi battling in a conference room, and by the copy machine: Darth Vader holds a smartphone with the LevelUp logo on its screen.

Teams of LevelUp employees were each given a conference room to design, resulting in uniquely themed spaces. One room invokes Game of Thrones' Westeros; another is based on Batman's Gotham City.

LevelUp provides a bagel breakfast every Monday and lunch every day to keep employees in the office, interacting with each other to promote team unity.

Even though the culture is playful and casual, LevelUp employees "get treated like adults as far as the workload and responsibility is concerned," said Calderon. Employees work long hours, staying far past the normal end of the business day and sometimes coming in on weekends, she said.

The culture at LevelUp evolved naturally, ninja/CEO Priebatsch said in an emailed statement.

"We hire people who are willing to work hard on a decade-long endeavor to rebuild the payments ecosystem. That takes a certain level of motivation and a certain level of crazy," said Priebatsch. "The people who sign up for that mission tend to be quirky, intelligent, hard-working people and that leads to a pretty great but 'different' culture than you might expect at most payment firms."

While Priebatsch hasn't heard from many haters, he said, "I'm sure it rubs some people the wrong way."

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry