by Quang Truong


LevelUp is a Cambridge, MA mobile payments company launched in March of 2010. The brainchild of Seth Priebatsch, founder of SCVNGR, the company was initially operated as a daily deals platform before switching exclusively to mobile payments by July 2011. Essentially, LevelUp is a mobile app for iPhone and Android phones that allows users to pay merchants by waving their smartphones in front of a LevelUp receiver. Users can also receive deals and discounts to local merchants through the application, encouraging customer loyalty. LevelUp has also been generating a great deal of buzz because of the company’s unique philosophy of “zero interchange”, the belief that merchants should not be charged the typical 1 to 3% fee for accepting credit and debit cards. Today, the company has 148 employees and is offered by over 4000 merchants and 1,000,000 end users.


infographic on LevelUp

CEME Presents: LevelUp, part of the ABCs of Payments Series


LevelUp users start by downloading the app onto their smartphone and linking their credit or debit cards directly to their account. No money is ever stored on the phone. LevelUp then generates a unique QR code for the user, which can then be waved in front of any LevelUp receiver to make payments to the merchant. At the point of sale, LevelUp charges the consumers’ credit card account, eating up the cost of the credit card interchange fee itself while paying the merchant the full price of the transaction. Because LevelUp is losing money with each transaction, the company makes money through several ways. First, the company takes 40% off of the transactions it helped generate through “Acquisition Campaigns”.

For example, a fine dining restaurant hopes to attract new customers by offering a $10 credit. LevelUp advertises this dining credit to local users, and a customer decides to eat at the restaurant purchasing a $50 meal. Using LevelUp, the customer would pay $40, and LevelUp would receive $4 and the merchant $36.

The same restaurant could also initiate a “Loyalty Campaign” by offering, for example, returning customers a $20 discount for every $200 spent. LevelUp makes 40% in this case as well, receiving $8 dollars out of the returning customer discount. The majority of revenues are generated in this way, although LevelUp also creates income by providing advertising counsel to merchants. For a negotiated fee, the mobile payments startup will help merchants design a “white label” payment application featuring the merchant’s specific brand, or co-market a specific business along with LevelUp. Formerly, LevelUp generated revenue by charging merchants a $25 per month fee for the terminal as well as a 2% interchange fee, similar to Square. However, the interchange fee was eliminated in June of 2012 and merchants can now request point of sale scanners completely free of charge.


LevelUp offers an attractive product for both merchants and consumers. Consumers can download the app entirely free and will receive discounts and meal credits automatically. Merchants benefit by being able to receive payments without paying any interchange fees. Merchants don’t pay any monthly fees and are only charged if LevelUp helps a business acquire or retain a customer. LevelUp also takes a much smaller cut of the initial purchase relative to Groupon. Additionally, the fact that LevelUp is concerned about customer loyalty is seen as a huge boon for merchants – allegedly, 65% of customers using a LevelUp discount return for at least a second visit, compared to fewer than 5% for Groupon.


LevelUp is administered by Braintree: when a QR code is read from a terminal, the data is sent by internet to LevelUp servers, which then initiate payments based on credit card information stored in Braintree servers.

Payments are received by the consumer’s credit card company immediately, but held in the merchant’s LevelUp account. Payments to merchants are made every Monday, Wednesday and Friday via direct deposit; because there is a delay, LevelUp can make adjustments to the Net Sales Proceeds paid out to account for chargebacks, calculation errors, or fraudulent use.


Levelup is currently valued at $172 million after $21 million fundraising round. This is compared to $100 million valuation 12 months ago. LevelUp users in total spend an average of $10 per month and frequent users pay with the app for 2-3 purchases a week.

In terms of merchant and user acquisition, here are a few key figures from over the last year:

This shows remarkable growth throughout 2012, but the overall numbers are still small compared to the 140 million end users and 45,000 merchants figure claimed by Groupon.


One major concern for LevelUp is security. Since data is transmitted through QR code, a copy of that code can be made – using a Xerox, scanner, or simply taking a picture – and subsequently used by others for payment. LevelUp currently addresses this by allowing users to easily request new QR codes, but this is hardly a permanent fix. LevelUp has also discussed moving to NFC payment methods, which would enhance security.

One potential business concern for LevelUp is that their revenue depends on merchants using Acquisition or Loyalty Campaigns. LevelUp would lose money on business that signed up for the service but ran no campaigns because of eating up interchange fees. How LevelUp will address this, or if it will even need to be addressed in the future, remains to be seen.

#1 in the Series ABCs of Payments. The ABCs of Payments will examine a new company or innovation in mobile payments each week.
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One Response to LevelUp

  1. […] Unlike the more ‘traditional’ wallet, LevelUp provides additional benefits and awards for those who make their payments by using the app. One additional benefit that LevelUp offers is by advertising ‘credit’ which is essentially free money for the consumer. “For example, a fine dining restaurant hopes to attract new customers by offering a $10 credit. LevelUp advertises this dining credit to local users, and a customer decides to eat at the restaurant purchasing a $50 meal. Using LevelUp, the customer would pay $40, and LevelUp would receive $4 and the merchant $36,” Quang Truong. […]

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