Mobile Payment Platform Wars: LevelUp, Paydiant, PayPal, & More

Is 2013 the year I put all the cash under my mattress away, leave my credit card at home, and start paying for everything with my phone?

Not bloody likely. At least not for a neo-Luddite like me. Yet some proponents of mobile payments are saying this is a crucial year for the sector to start going mainstream.

“I think 2013 will be the year that a mobile payment winner will be named,” says Seth Priebatsch, the founder of Boston-based LevelUp. He doesn’t mean it’ll be the end of the story—just that a default leader will be crowned by the public. “We haven’t hit an inflection point yet,” he says, in terms of adoption. “But by the end of this year, it will be clear you can pay with your phone.”

That’s not all, of course. Many of the field’s innovators insist that the real opportunity isn’t even in the payments. “Loyalty and marketing, that’s the most interesting,” says Chris Gardner, the co-founder of Wellesley, MA-based Paydiant. “It’s not a technology debate anymore. It’s about the business model.”

Mobile payments is one of those tech sectors, like online advertising or cloud virtualization, that makes my head hurt. There are so many players coming in from different angles and at different levels of the value chain: Besides all the techies with apps and software platforms, you’ve got retailers, brands, banks, credit card companies, payment-processing firms, and a slew of loyalty and rewards programs, all vying for a piece of the pie.

That can lead to confusion—and a reluctance to buy in, among merchants and consumers alike. For the latter, it’s still pretty convenient to use a credit card or cash, even if you might save money by using your phone. And a typical merchant or retailer might think, “I’m still figuring out Twitter, please don’t talk to me about mobile payments,” says Priebatsch.

Yet times may be changing. LevelUp, for one, has been shifting its strategy in recent months. It has expanded beyond its consumer app to a platform approach, whereby third-party developers working for (or with) larger merchants can use LevelUp in the systems they build. And the startup has integrated its software with more than 20 point-of-sale companies, so that more stores and restaurants can handle LevelUp transactions directly; that helps with advertising campaigns, such as a recent one with Coca-Cola. The payoff so far? Priebatsch says February was his company’s highest-revenue month to date—up 35 percent over January.

Meanwhile, Paydiant has been progressing as well, signing up big banks and retailers as part of its “acceptance network,” Gardner says. The company’s software platform enables corporate customers to add capabilities in payments, offers, and rewards to their own apps. This “white label” approach will see more competition in the future from emerging players, including LevelUp, which Gardner views as pursuing a “land grab” strategy. “I really admire what they’ve done,” he says, “but I don’t know how the economics work long-term.”

And let’s not forget about the big boys. Google, PayPal, ISIS (from the wireless carriers), and Square are all significant players in mobile payments; PayPal is particularly interesting locally because its Boston office, with its DNA from the acquired startup Where, is all about mobile and analytics.

Adjacent to startups like LevelUp and Paydiant are companies like Foursquare and Swipely, which are increasingly pursuing retail marketing, loyalty, and analytics. And plenty of other startups such as Dwolla and Plastiq (which recently raised $6 million in venture funding) are trying to enable new kinds of online transactions. Leaf and WePay are also interesting players; the latter just rolled out a mobile-payment app for small businesses last week.

There are overarching issues around who will own the customer data and relationships—and, of course, around consumer privacy. Big retailers want consumers to use their branded apps (think Target, Walmart). Banks want people to keep their money in bank accounts, not PayPal (which also competes with credit cards). Payment networks want to integrate with everyone. Local merchants want something that works reliably and brings in new and repeat customers.

The consensus seems to be that mainstream adoption of mobile payments is still a few years away. “It’s going to take a while,” says Gardner, who points out that consumers will have to overcome “50 years of muscle memory on swiping plastic.”

Nevertheless, local startups are making progress. LevelUp recently passed 1 million users, a figure that Priebatsch calls “significant to our merchant customers.” He adds, “People who ignored us a year ago, we can say, ‘Consumer mindshare has shifted.’ Now it’s a real adoption curve.”

And the race is on, as he says, to become the default leader in the sector. “We’ve got this year to be the best and then, if we pull that off, 2014 will be the year of expansion,” Priebatsch says.

As befits his app (and company) name, he adds, “We haven’t hit a level where we can rest or be comfortable.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and Editor of Xconomy Boston. E-mail him at gthuang [at] Follow @gthuang

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