• by Steve Smith , Staff Writer @popeyesm, December 29, 2011

Mobile payment systems, whether they be Web-based models like PayPal or full-bore NFC-powered approaches like Google Wallet or ISIS, may seem to consumers a solution in search of a problem. After all, paying with your phone is a neat trick, but ask yourself the hard question: were those stacks of credit cards in your wallet that m-payments replace really a choke point in the purchase process? My guess is that providers are a lot more anxious to get m-payments off the ground than are consumers.

Enter the gimmicks designed to get people acquainted with m-payments. The Google Ventures-funded company LevelUp will offer free pizza to Times Square New Year’s Eve revelers who use its payment system at the local Villa Fresh Italian Kitchen. LevelUp is from the same people who brought us the SCVNGR, the mobile game where you earn points for exploring nearby locations. The LevelUp system works primarily through an app (mobile Web also available) to give the user a unique 2D code to show at checkout in order to charge the order. In this case, the users will get $10 of free food at the Villa Fresh store.

LevelUp is running in small businesses in Boston, New York, Philadelphia and San Francisco, many of which have special discounts attached to using the code. LevelUp uses a daily deal model married to a loyalty program. The LevelUp app features another one of its partner vendors each day with a $5, $10, or $20 credit to apply. But most individual businesses also have their own first-time user incentive.

The company says return visits unlock more credit and help local businesses build loyalty. The pitch to business owners is that the app gives the vendor real-time views into its own usage patterns. According to LevelUp, the analytics platform lets the business see average amount spent per customer, rate of return visits and even how traffic alters on given days or if weather impacts visits.

A business pays 2% of the transaction cost to LevelUp and $55 a month to upgrade the free basic analytics to a Pro version. The company services the ecosystem by offering its own universal credit promotions like a “Lunch on Us” offer that applies credit to any merchant in the system.

Getting people to try a mobile payment model for an ad hoc promotional discount may be a startup’s strategy for getting press attention and some early-adopting test customers. Moving consumers to using their phones as credit cards is another task entirely. The challenge for m-payments will be crafting and demonstrating real value adds that justify consumers changing habits that have been etched by decades of daily use.

LevelUp is coming at the problem with what it calls an “inverted deal” structure. Rather than couponing in the Groupon style, they offer the first time user an initial credit but then reward the returning customer with incentives to keep buying to achieve another threshold that unlocks a credit. As we all know by now many local merchants that have tried the deep discount daily deal model with the many available vendors complain that the coupons don’t ultimately foster new users and don’t result in enough return visits. LevelUp seems to be trying to address this issue with a built in incentive to return to the merchant and buy items at full price.

The company claims that it ends up being cheaper for the local business and generates better ROI. For every dollar in initial credit a merchant gives a new customer using the m-payment system, the average return in spend from the customer is $5.70. The new customer is making three to five additional full price purchases before triggering another reward.

Like many of these mobile payment schemes emerging in the market, LevelUp is just one among many fragments vying for attention. Good luck to any one of them cracking the code of local service advertising. This is a story I have been reporting since 1997 -- the skillions of dollars purportedly in mom and pop ad budgets that everyone from Microsoft sidewalk to Google Adwords has been trying to nab. The various overlapping plans for engaging the consumer at the local and retail level with mobile solutions to problems they didn’t know they had will certainly create confusion before they offer anyone clarity. LevelUp is smart insofar as it is aiming for the two chief constituencies at once, merchants and consumers. Whether it can rise above the noise that is about to come from the m-payments gold rush of 2012 is anyone’s guess, however.

If you are in Time Square this weekend for the big ball drop, then you likely are too crazy or wasted to remember to open your app and get a free order. But it may be worth trying a slice and seeing how it tastes.