Among the barriers NFC contactless payment faces on the road to broad adoption, none may be as challenging as identifying and proving sufficient value to merchants and other B2C enterprises that justifies their investment in such a solution. However, the Cambridge-based company LevelUp, an offshoot of the startup company SCVNGR, has found a way to justify merchants’ investment in a contactless payment solution. However, there is a small catch—it’s QR code-based, not NFC.
Historically, the adage “if it’s not broken, don’t fix it” certainly has applied to most merchants’ payment acceptance strategies. While credit/debit cards and good old-fashioned cash work well enough, each has material costs associated with its acceptance—namely, interchange/processing fees for cards and handling/management expenses for cash, not to mention the risk of shrinkage.
What makes LevelUp an attractive option for merchants is that the company eliminates (or, more accurately, entirely subsidizes) credit/debit card processing fees, which generally represent 2-3% of a given transaction amount. That small percentage may not sound like much, but it adds up—transaction fees are estimated to drain approximately $50 billion (that’s billion, with a B) from merchants’ bottom lines annually. LevelUp only makes money when it delivers a new customer, or generates a repeat business (i.e., loyalty) from a specific customer at a particular merchant.
Barcode/QR code based payment applications are not a new concept—in fact, Starbucks’ payment app, provided by mFoundry, sets the gold standard for success when it comes to mobile payment apps. However, what distinguishes LevelUp is the type of merchants that are adopting the solution—in particular, independent retailers and other SMBs whose limited IT budgets typically preclude them from evaluating contactless solutions. To date, most contactless payment deployments (barcode, QR code, or NFC-based) have been at major Tier 1 enterprises, such as Starbucks. LevelUp is working to change this paradigm, and early indicators suggest it is succeeding, as the company has 3000 participating merchants across 10 regional markets and just secured an additional $12 million in VC funding. Perhaps QR codes/barcodes will be the technologies that bring contactless payment to the masses after all, not NFC—only time (and the actions of consumers, merchants and financial institutions) will tell.