Changing Interchange: LevelUp’s Vision For Payment’s Future

“Hey, do you pay interchange? You should stop.”

According to Seth Priebatsch, founder, chief executive officer and “chief ninja” of SCVNGR, that’s the essential sales pitch LevelUp offers to new merchants.

Not only is that pitch working, it’s threatening to revolutionize not only the mobile payments industry, but the entire interchange fee system as we know it.

Those were the main takeaways from LevelUp’s Analyst Day Event, a meeting at the startup’s headquarters in Boston in which Priebatsch and Chief Revenue & Strategy Officer Chris Mahl delved into LevelUp’s recent news, gave new technology demos and spoke at length about the company’s vision of payments’ future.

LevelUp rattled off no shortage of impressive numbers during the day. They currently service around 4,000 merchants and 300,000 users, but are expecting the later number to surpass one million by mid-Q1 2013. The payments startup revealed a new growth round of $21 million (at a $172 million valuation) from a mix of existing backers and newcomers such as Continental Investors. And Mahl boasted that of all the users who have ever downloaded LevelUp, 65 percent are active every month.

But the most startling yet impressive vision LevelUp offered was one it’s already working hard to create: a future without interchange fees.

“The cost of moving money is going to go to zero because of tech players like us, competitors like Square, regulations like Durbin, and frankly a populist movement in the country that will push for legislation against banks,” Priebatch said.

“The pure utility of moving a dollar isn’t going to be a chargeable entity for anyone anymore.”

That’s a bold statement, and LevelUp’s zero interchange policy lends itself to an obvious question: if the mobile payments startup doesn’t charge its customers, isn’t it sustaining a loss when it moves money?

The short answer? Yes, but for LevelUp, it’s well worth it.

“The money we make on advertising eclipses what LevelUp loses in interchange fees,” Priebatsch said.

Although Priebatsch couldn’t go into specifics, he also noted that LevelUp is able to pay significantly less – read: about one-third – in interchange fees than is the average merchant. Priebatsch said that’s largely due to three factors: the algorithms LevelUp uses to run transactions, the fraud reduction built into its system and negotiations with individual banks. Priebatsch believes LevelUp will be able to further reduce their interchange fee by another half in the future, but is focusing instead on campaign building. 

“Our long term goal isn’t to do our own processing – we’re the hardest working lazy people you’ll ever meet,” Priebatsch joked. Instead, LevelUp’s “Chief Ninja” noted that “marketing dollars are infinitely larger than processing dollars,” and so that is where LevelUp will continue to make its money.

We are an advertising network masquerading as a payments company,” Priebatsch said, “much like Google is an advertising network masquerading as a search engine.” 

Some more notes from LevelUp’s Analyst Day:                               


LevelUp made major news recently for unveiling its white-label offering, which we asked Vice President of Sales John Valentine about last week.

Priebatsch and Mahl both expanded on the service during Analyst Day, claiming that it’s perfect for midsized businesses who don’t want to spend $3-5 million building their own infrastructure, but also want their own brand to remain strong. Priebatsch also cited geofencing as a feature that LevelUp doesn’t want to offer in its flagship product, but that it can make available for those who use their white-label offering. 

P2P Payments 

Near the end of the event, Priebatsch was asked about the possibility of LevelUp integrating person-to-person (P2P) payments into its mobile app. Priebatsch demonstrated that when you try to scan a buddies’ unique QR code right now, a screen pops up with three options for users to vote on in terms of desire for P2P: totally, no and I don’t like voting. Priebatch looked amused as he noted that the last option is in the lead so far, but that LevelUp plans to add the feature for free in the future anyway.

LevelUp Demographics

According to Priebatsch, LevelUp’s users are generally urban dwellers in the range of 18-36 years of age. There’s a slight skew towards males and iPhones over females and Androids, and the debit/credit transaction split is around 60/40.

User Behavior

The LevelUp execs explained that their user behavior has largely been dictated by the merchants they’ve chosen, and that they’ve primarily targeted small food-related businesses for a reason: it’s relatively easy to change consumer behavior.

“It’s more difficult to get someone to switch their plumber or doctor than their lunch choice,” Priebascht quipped. “Plus, it’s harder to commit fraud [buying] a sandwich than a television.” 

Best Line Of The Day

Priebatsch had plenty of chuckle-worthy quips, but the best line of the day came from Mahl, who, in describing the “78 dialects” payments currently has to offer, compared it to the Star Wars cantina scene. Oddly enough, given the crowd present, the reference was lost on no one.

A Genius Display

Analyst Day coincided with LevelUp’s extended partnership with Merchant Warehouse, by which the latter will integrate with the former’s Genius payments platform. Those of us in attendance witnessed a technology demo that showed how the LevelUp-backed Genius can work with a wide variety of POS equipment from an equally wide variety of companies.

Who’s The Competition?

According to Priebatsch, Apple and MasterCard don’t scare him, but Facebook and Amazon do. He noted that Amazon could subsidize interchange similarly to LevelUp, while Facebook has enormous potential to generate revenue from ads. But overall, Priebatsch didn’t seem too worried, offering this quip: “If you make money off of interchange, you’re not a competitor.”


Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.

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