LevelUp

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.

 HARDWARE AND PROTOCOLS

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.

 COMPANY FINANCIALS

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.

 WEAKNESSES

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.


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1 comment on this post.
  1. Just another reason why the iPhone is man’s best friend | Brent Villiott:

    [...] 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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