Mobile payment startup LevelUp is throwing down the gauntlet to other payment networks. It's eliminating all transaction fees charged to merchants who accept its payment method. The company said it will only charge merchants for customer acquisition and loyalty campaigns run through LevelUp.

"The process of moving money is now becoming a commodity, a de facto service. We're entering an era in which merchants should get — and will eventually only pay for — value above and beyond the transaction," said LevelUp's "Chief Ninja," Seth Priebatsch. "LevelUp is skipping this 'race to the bottom' happening between the major payments companies and leading the way by providing real value beyond the transaction."

LevelUp offers a mobile app that lets users pay at merchant points of sale by displaying a personalized 2D barcode linked to a payment account. Users also earn credit in their LevelUp accounts the more they use them to pay.

Calling its new no-fee model "Interchange Zero," LevelUp is looking to differentiate its mobile payment services from those of other payment networks. Instead of taking a piece of each transaction, it's banking on merchants finding more value in the transaction data itself, which they can use for marketing to new and existing customers.

The audacious part is that LevelUp is only charging merchants a percentage when those campaigns succeed. For every incremental dollar brought in, the company will collect 35 cents. 

Tying itself to the success of a merchant's marketing efforts may sound bold, but Priebatsch notes that the company is simply following a trail blazed by another successful startup.

"Google gave away access to all the world's information for free," Priebatsch said in a statement. "They could have charged per search, but they didn't. They chose to make money only when they added real value for an advertiser by driving a consumer to a website with a click," Priebatsch said LevelUp is simply following the Google model with payments.

"We're going to enable the frictionless flow of money and only make money when we add real value for merchants — in this case, by driving a new customer to a business with a transaction," he said. 

Launched last year in only a few cities, LevelUp is a part of Boston-based SCVNGR. SCVNGR announced just last month that it had raised $12 million in funding. At the time of the funding announcement, LevelUp boasted more than 3,000 merchant partners nationwide with users of its payment method spending more than $2 million a month. 

For more stories like this, visit the Mobile/Virtual Wallet research center.

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User Comments – Give us your opinion!
  • Cory Weaver
    What about security? There is a reason why Mastercard and Visa invest millions in protecting the cardholder from fraudulent behaviour.
  • Larry De Palma
    First, if you want to be taken seriously as a payment system player, you dump the titles like "Chief Ninja" because if you ask other 'defunct' companies about some of their challenges, one of them is to get the institution of banking (which is old school) to partner with them (and yes, you need them as a partner). SVPs don't find Ninjas terribly credible.

    Next, no one takes you seriously if you don't price your service realistically. The concept of "Free" leads any business person to think "if it's sounds too good to be true, it probably isn't."

    I think it's time for the LevelUp people to "wake up". Isis, Google, Visa, PayPal, etc., don't give anything away and they are staying in business quite nicely.
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