What’s Actually Interesting About LevelUp: Seth Priebatsch on Money & Merchants

6/7/12Follow @gthuang

“That’s honestly the least interesting thing we’re up to at the moment,” says Seth Priebatsch of Boston-based startup SCVNGR. And I believe him, mostly.

He’s talking about the $12 million financing his company announced today. The money, the first installment of what Priebatsch says will be a larger financing round, comes from a couple of new backers—Continental Investors and Transmedia Capital—plus existing investors. Even though Priebatsch is downplaying the news, we media hounds grasp onto hooks like this, if only so we can pull ourselves out of the morass of non-stories and techie sameness and gain a clearer view of what’s important.

SCVNGR has been plugging away with its LevelUp mobile app, which lets consumers pay for things at restaurants and stores and get rewarded for their purchases (including the first time they use it). Just under a year old, it’s already the second-largest mobile payment network in the U.S., behind Starbucks, and is active in eight cities with 3,000-plus merchants participating.

The startup recently moved across the river to bigger digs in Boston. Priebatsch says his team has just made about 40 new hires, which brings the company’s total staff to about 170. But what really gets him excited is the firm’s latest push in mobile payments. Merchants can now take LevelUp offers and embed them into real-world (and digital) ads; so a consumer can use a smartphone to scan a code on a poster on the subway, say, to get a $5 discount at a local store.

And on the finance side—this whole effort is really about creating the digital future of money—Priebatsch says SCVNGR has started a campaign whereby banks can incentivize consumers to link their debit cards to LevelUp. The company’s first partnership is with Sovereign Bank. “It represents a neat shift in the space as banks start bidding for placement in mobile wallets,” he says.

A few months ago, I met with Priebatsch in his old office in East Cambridge. I thought it would be interesting to share a few thoughts from that visit, because the world has changed a lot since then. Priebatsch was candid about LevelUp’s progress—at that time it had just over 100,000 users, and now it’s closer to 200,000—and its prospects. “The first version of LevelUp wasn’t awesome,” he said. “But we have a very high standard for awesome.”

One cultural tip he shared was that eight weeks is about how long it takes to figure out whether something (or someone) is working right at SCVNGR. It doesn’t matter if it’s a product, a feature, or an employee. Eight weeks.

Getting people to try a new mobile payment system in the first place isn’t easy. The key to LevelUp’s success so far, Priebatsch said, is getting users to go back to merchants and keep making purchases. That’s not surprising, but the company has worked hard to figure out how to get consumers over the hump, using a combination of initial offers and game mechanics. “Once you make it past two or three transactions, it is a sticky, sticky product,” he said.

As for the future of money? Priebatsch has thought about that a lot. One of the big goals of LevelUp is to disintermediate payments—to let consumers pay merchants without either party having to pay fees to a middleman like Visa. The entrenched financial industry may have something to say about that, but Priebatsch is banking on progress in information technology and data analytics to exert downward price pressure. “Money is like electricity—it follows the path of least resistance,” he told me. “The cost of moving money will eventually converge to zero.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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  • LevelUp Fan

    LevelUp is my new favorite app! I just started using it, and I’ve gotten two free meals at my favorite lunch place. I now have up to $11 credit at several other lunch places nearby. This is awesome! You can get $5 credit when you sign up if you use this code: 142059.