I have no doubt that LevelUp’s high-energy, twenty-something founder Seth Priebatsch would’ve liked his mobile payment app to be more of a household name by now. Things haven’t gone that way for the company, one of Boston’s most audacious consumer tech plays of recent years.
Launched in mid-2011, LevelUp lets you pay with your phone at participating businesses, mostly restaurants. Users can also earn loyalty rewards (money off) at many of the merchants.
Boston, where LevelUp is based, has adopted the service most widely, according to a recent report by the Yankee Group. But usage of LevelUp “remains negligible” outside the Boston area, the report says. Just 0.6 percent of survey respondents had used the service in the prior month.
However, that doesn’t mean the service is flailing. About a half million new users joined LevelUp over the past year — well below the nearly 1 million users that were added during the previous year, but growth just the same.
In my view, LevelUp has landed in something of a gray area for consumer startups. Not an obvious success or failure. But getting enough growth to keep pushing on. Matt Kiernan, director of marketing at LevelUp, calls the company’s trajectory “a nice, steady climb.”
LevelUp’s progress may not seem all that impressive, but think about it: Priebatsch and co. have spent three years trying to create a brand-new payment system — an almost preposterously difficult goal for an upstart. And they have survived. The Yankee Group lists LevelUp as one of just five mobile payments vendors with any traction, and it’s the only vendor in the group solely devoted to mobile wallet technology (the competitors are Google, PayPal, Square, and telecom-backed Isis).
Gaining traction is “a big challenge for anybody in this space,” Kiernan said. “Mobile payments is a new behavior … Trying to throw our scanners everywhere right away isn’t necessarily the goal.”
Indeed, getting new businesses up and running on LevelUp is tough. “It requires education of the merchants to understand the technology — e.g. QR code scanning — and the benefits it brings, and (requires them) to promote this to their customers, the combination of which is not small order,” said Gartner research director Sandy Shen in an email.
LevelUp had 5,000 merchants on its system as of a year ago. Around that time LevelUp inked a deal with payments giant Heartland, meant to accelerate the growth of LevelUp by putting Heartland’s sales force on the task.
During the ensuing year that led up to today, LevelUp added 3,000 new merchants — respectable, but not blockbuster, growth.
Notably, LevelUp hasn’t found its way into restaurant chains in a big way. And “without a major merchant on its roster, LevelUp will face extreme difficulties broadening its reach,” the Yankee Group said.
On the staffing side, LevelUp now has about 85 employees, roughly the same as a year ago.
Changes at LevelUp
More focus has gone to selling white-label versions of LevelUp over the past year. White label in this case is when merchants get an app and reader based on the LevelUp technology, but with their own brand name on it.
LevelUp earns revenue for the work related to the white-label version and also gets fees when users unlock loyalty rewards. The merchants and consumers using the white-label versions are counted in LevelUp’s numbers.
Another change at the company: LevelUp, which connects to users’ credit cards, has stopped covering card processing fees for businesses. Starting in mid-2012, LevelUp compensated by requiring merchants to run fee-generating loyalty campaigns.
But not all merchants wanted to run loyalty campaigns, Kiernan said. LevelUp execs decided a few months ago to make the campaigns optional, and take a flat processing fee of 2 percent per transaction, he said.
The bottom line
A doomsday scenario for LevelUp (funding runs out, investors won’t put more in) could still happen. It probably wasn’t a good sign that the company quietly raised new funding in September — much sooner than Priebatsch had hoped for. And, by way of history, the company actually started in 2008 focused on a totally different product — the Scvngr location-based game app, which fizzled. So investors have actually been backing Priebatsch for a good while now, not just since 2011. Investors include Highland Capital Partners and Google Ventures, and LevelUp has raised at least $48.5 million in total.
Meanwhile, Google, PayPal, and Square have made more headway in getting adoption for their mobile wallets than LevelUp, according to the Yankee Group.
As a regular LevelUp user for more than a year, I’d love to see it catch on.
But Priebatsch himself has told me that there’s been some urgency around getting this to happen. Last May, he shared his concern that “people are going to get bored” with LevelUp if a lot of progress couldn’t be made in relatively short order.
In the 10 months since we spoke, I’m not sure LevelUp has made the sort of impact Priebatsch was talking about.
Still: LevelUp may very well keep growing for a while to come. The company seems to have found a niche with its white-label offering. And there’s always the Boston market, which may be experiencing some LevelUp network effects at this point.
No matter what happens though, I’ll offer this argument about LevelUp: Even what the company has done thus far — becoming a top player and innovator in the much-hyped and highly-competitive space that is mobile payments — has been, in itself, a serious achievement.
Kyle Alspach has worked in journalism in Massachusetts since 2005 and was one of the original staff writers at BetaBoston.
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