LevelUp Launches Fee-Free Transaction Model 

July 16, 2012

SCVNGR, the Boston-based provider of the LevelUp mobile payment app, late last week announced it will no longer charge merchants a percentage of each transaction for its payment service. The company claims the justifications for interchange—the cost to build and maintain the physical network and the costs due to fraud—no longer apply and those that process payments should only charge for value they bring to merchants beyond the simple processing of transactions.

“The process of moving money is now becoming a commodity, a de facto service,” says Seth Priebatsch, who calls himself LevelUp’s chief ninja. “We’re entering an era in which merchants should get—and will eventually only pay for—value above and beyond the transaction. LevelUp is skipping this ‘race to the bottom’ happening between the major payments companies and leading the way by providing real value beyond the transaction.”

Merchants that accept LevelUp at the POS only pay for customer acquisition and loyalty campaigns. The company, which recently raised $12 million in new capital, says it will charge 35 cents on every promotional dollar merchants spend to get new customers in the door and that LevelUp will help spread the word on such promotions through the app. A local restaurant could, for example offer $2 off a $10 entree for anyone using LevelUp for the first time at the store. The customer would pay $8, and LevelUp’s would charge 35 cents per dollar from the campaign. The merchant would pay $2.70 for the promotion per customer, but LevelUp maintains enough new customers would be generated by the promotion to make it worth it, and the transaction would be free.

The LevelUp mobile app generates a barcode consumers use to pay at the POS. The barcode is linked to a credit card, so LevelUp is still responsible for the interchange the issuer charges per transaction. Three thousand U.S. merchants now accept LevelUp and more than 200,000 consumers have downloaded the app, according to the company.