LevelUp Leads “Cambrian Explosion” of Mobile Payments & Rewards

8/3/12Follow @gthuang

Don’t bet against Boston-based SCVNGR. That’s what I’ve been hearing lately. You take that much talent and that much money and throw them at a big market, like mobile payments or rewards programs or local deals—call it what you want—something’s going to stick.

That something seems to be LevelUp, the mobile app created by founder Seth Priebatsch and company that lets consumers make purchases with their smartphones and get rewards at some 3,000 restaurants and stores around the country.

LevelUp said yesterday that it has closed $9 million more in financing from T-Venture (Deutsche Telekom) and individual investors, bringing SCVNGR’s total raised to about $41 million from the likes of Google Ventures, Highland Capital Partners, and Balderton Capital. The startup says its valuation is $172 million.

LevelUp is trying to create a new kind of payment network that provides merchants with customer analytics, local marketing, and a rewards program—all in one system—with no interchange fees for moving money around. (There are other fees for acquiring new customers and retaining old ones.) But the network will need to grow far beyond its current 200,000-plus consumers for the company to rake in serious revenues. And that’s the plan.

The trick, of course, is that there are so many other companies and competing approaches in payments, loyalty, analytics, and deals. But LevelUp’s strategy seems to have solidified, and its path through these crowded sectors is perhaps more straightforward than ever.

I traded e-mails with Priebatsch this week about his company’s progress and how his role as, ahem, Chief Ninja has evolved recently (or not). Here’s a transcript:

Xconomy: Has anything changed in the mobile payments landscape in the past few months? What’s the big trend?

Seth Priebatsch: We’re in the pre-Cambrian explosion of mobile payments. Everyone and their mother is launching a mobile payments company. So the big trend is diversity and volume of players.

The interesting trend that I haven’t seen evolve yet is a de-focusing on the “payment” and more focus on “value beyond the transaction.” As you know, that’s 95 percent of what we think about in regards to LevelUp and I’m sure that as these hundreds of new companies evolve, they’ll try to differentiate by adding unique value beyond the payment. I think that’ll be the exciting trend a few months from now.

X: What’s the most innovative thing LevelUp is doing, from a business strategy standpoint?

SP: Well, beyond Interchange Zero [reducing merchants’ fees for moving money around to zero] I think the next most innovative thing we’re doing is actually tied to this financing. If you look at the backers we’re assembling, it’s the dream team of who you’d want backing a mobile payment company ready to go to war:

—Card network experience: The founders of Discover Card invested in the first tranche of this round.

—Mobile phone scale: Google Ventures (venture arm of Google) is an investor, with one of the founders of Android on our board.

—Carrier leverage: T-Venture (venture arm of Deutsche-Telekom, who owns T-Mobile, who’s a backer of ISIS) just invested.

These three partners complete our tri-force of unfair advantages in the marketplace. Interestingly, you’ll also see that all of those companies (at least the corporate arms) have their own mobile payment plays but are also investing in LevelUp.

X: What is your biggest challenge now? How do you get massive adoption?

SP: There are two big challenges: user acquisition and merchant acquisition. The good news is, we’re onboarding users and merchants faster than ever. The bad news is, it’s not fast enough.

From a user acquisition perspective, we’re about to roll out some pretty awesome new viral features and new co-marketing initiatives to help our merchant partners activate their customer base more effectively.

From a merchant acquisition perspective, we’re launching with a number of partners with huge scale who are going to introduce the LevelUp solution to their hundreds of thousands of merchants come Q4.

X: How has your leadership role evolved as your company has grown and matured? What have you learned?

SP: Oh man. Tough question. The best part of our growth over the last year is that my role has stayed pretty much where I want it to be, on product and engineering. We hired a killer CTO (Harald Prokop) and a top-notch CFO (Mark Amabile) to tackle those parts of the organization. Andrew Boch, our operations lead, handles the infrastructure (both human, technical, and partner related) to scale LevelUp to hundreds of thousands of merchants, and Michael Hagan is leading our sales team. Chris Mahl has taken on the role of Chief Revenue and Strategy Officer focusing on the big deals with huge partners (like our Sovereign partnership) that would be too difficult for me to pull off (really!) but give us huge scale.

With an executive team like that, I get to hide in my office, drawing on orange whiteboard walls and working with the rest of the engineering team to dream up what’s next. That’s my favorite thing and luckily I’ve learned how to build a rock-solid team so I just get to keep doing it.

X: What can we expect to see in the coming year from LevelUp? Is it predictable from here?

SP: We’ll cross the million-user mark within the next 12 months. We’ll keep our interchange rate at zero (forever) and increase our revenue streams faster than ever. We’ll probably introduce NFC [near field communication] to our LevelUp terminals if it becomes more mainstream. And, LevelUp will likely be integrated into all major POS [point of sale] systems (a huge milestone) by the end of this year.

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 or call him at 617-252-7323. Follow @gthuang

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