People in the payments profession spend a lot more time than one would expect talking about chickens and eggs - especially those trying to get mobile payments platforms off the ground.
In hundreds of interviews done over the last five-and-a-half-years here at PYMNTS, we have heard countless variations on a single question:
“How do we crack the chicken and egg problem and ignite mobile payments?”
While it can seem counterintuitive that the massively nuanced and high tech pursuit of ushering consumers into a new payments scheme can be so effectively summed up by a riddle that is mostly used to confuse elementary school students - it is nonetheless an apt metaphor for the two-sided platform dilemma that characterizes payments.
To get mobile payments to ignite, everyone agrees both merchants and consumers need to “get on board” the new scheme. That’s the easy part. But which comes first?
To capture consumers, a platform needs merchants to be willing to accept it. To get merchants to accept it, especially if that acceptance relies on any sort of financial investment, a platform needs to understand that there is a large customer base looking to use it.
And the horns of this dilemma are not easily escaped.
Apple has a large, dedicated consumer base and a long track record of leveraging those customers to gobble up new and exciting products. But Apple Pay is conspicuously short on merchants. Its mobile payments platform has been slow to ignite because that large and dedicated customer base cannot develop a new payments habit when their payment method is only good at 3 percent of physical retailers and only available to those with iPhone 6s.
Then take CurrentC. It, in theory, has merchants, but no customers and no clear path to get them onboard.
Additionally, Google Wallet basically has neither and has been through four iterations of its payments organization trying to solve for that pesky chicken and egg problem.
And yet for all the headaches and confusion this chicken and egg problem has coughed up for many - for others, it has brought clarity and a refined focus.
Others like LevelUp’s Chief Ninja Seth Priebatsch.
[pullquote]“I never really understood the whole chicken and egg analogy in payments.” - Seth Priebatsch, Chief Ninja at LevelUp[/pullquote]
“I never really understood the whole chicken and egg analogy in payments,” Priebatsch told MPD CEO Karen Webster yesterday. “Chickens lay eggs – so they are obviously pretty important. But an egg only hatches one chicken. Chickens, therefore, can lay plenty of eggs. That means hands down, the merchants are the chickens in payments because one merchant can bring plenty of consumers.”
And, that, Priebatsch tells Webster, has been LevelUp’s focus and mission as a business – to treat merchants right so that they can bring plenty of consumers along.
Treating merchants right has been central to LevelUp’s mission since Day 1. The Boston-based startup has also evolved considerably since its 2011 launch and gone from a LevelUp branded mobile payments app for tiny merchants in the restaurant sector to a white label mobile commerce solution with rewards and lots of other value built around payments.
And today, LevelUp announced the next step in their evolution by naming Phil Purcell to their Board of Directors.
Purcell is the President of Continental Investors LLC, and before that, he was the CEO of Morgan Stanley.
But Purcell also has the special distinction of being something else - one of the guys who launched and brought to market the last successful payments network: Discover.
[pullquote]“I have a ringside seat at the future of commerce.” - Phil Purcell, President of Continental Investors LLC[/pullquote]
“I have a ringside seat at the future of commerce,” Purcell told Webster, “and it’s thrilling.”
Purcell is not exactly new to this ringside seat - as he and Continental Advisors have been involved with LevelUp for 2+ years as an investor. Priebatsch told Webster that bringing Purcell in as a Board Member was just a natural next step in his firm’s evolution - as he brings truly visionary insight into how to create, ignite and scale a payments network.
"We are absolutely thrilled to be having Phil Purcell join our Board of Directors" said Priebatsch. "There's only a very small number of people out there who combine a knowledge of how to build a world class company with such deep experience in the payments industry. I view it as a real competitive advantage for LevelUp to be able to lean on someone for advice who's been there before and seen it happen from the ground level."
And it’s insight that Purcell is excited to hand out, telling Webster that in many ways LevelUp has a lot more of the playing field (and those cursed chickens and their eggs) figured out then Discover did in its early days.
“At Discover – we knew we had a chicken and egg problem – we had to get merchants and consumers on board at the same time. We just didn’t know which we needed to do first, so we did a lot of cool things to bring consumers along – like extend their lines of credit at the same time banks were pulling back and offer cash back,” Purcell told Webster. “And, we used that to convince merchants that consumers would then use those cards at those merchants. This time [at LevelUp], we know who the chicken is, it’s the merchant. If we get merchants, we will get consumers.”
And that strategy seems to be bearing out, as LevelUp - to date - has 2.5 million users and is thriving as a truly mobile and data payments network, with users who are using those smartphones and LevelUp apps at 14,000 merchant locations. And while LevelUp loves its consumers, they offer their partner merchants much, much more in the form of “tons” of actionable data.
That access includes a variety of new tools that allow merchants to query and track in real time very specific information about customer – such as what women ages 18 to 25 who buy cupcakes on Tuesdays do on Wednesday and Friday nights, or what men ages 35 to 48 who buy coffee in the mornings on Mondays and Fridays do on the weekend.
“Because at the end of the day, a really valuable payments network needs to be more about data than it is about payments,” Priebatsch told Webster.
It was a sentiment that Purcell echoed in his conversation with Webster.
“We have to add the value to the merchant and the consumer – it has to be about more than the device and more than just payments.”
And that “it’s more than the device, it’s more than the payment” mentality is even gaining traction among the merchants LevelUp serves.
For instance, at Boston’s Georgetown Cupcake - reportedly the purveyors of some of the city’s finest cupcakes - its staff is encouraging customers to download their mobile app. Karen Webster, in fact, described the staff as “super enthusiastic” in one of her latest visits to this cupcakery. And they want their customers to be, too - so they baked and distributed a cookie that looked just like the mobile app. Sound silly? Maybe, but it pushed 5K new users to download the app.
— Seth Priebatsch (@sethpriebatsch) July 14, 2014
So, mobile payments, it seems, can ignite - especially if one is willing to think outside the box.
Or, like Seth Priebatsch and LevelUp - beyond the chicken coop.