Mobile Payment Provider LevelUp (Scvngr) Tries to Disrupt Pricing

Price disruption is both a possibility and likelihood when new entrants try to reshape a large existing industry, and it appears credit and debit card payments are no exception. 


LevelUp, a mobile payment app provided by Scvngr, says it will drop all "interchange fees," the percentage of gross revenues paid by merchants to card processors as a transaction fee.


It remains unclear whether the gambit will succeed. But if it does, and other competitors start to match the pricing, the importance of marketing, loyalty and advertising revenues as a driver of the former payments business will grow. 


That sort of disruption is quite familiar to service providers in the communications business, where per-minute prices for use of voice services, or per-message pricing for short message service (SMS, or texting) has been dropping for decades. 


As access providers already have discovered, new revenue streams must be created to replace lost legacy revenues, and that will happen in the credit and debit card payments business, using mobile mechanisms, if the LevelUp strategy works very well. 


While it has been common for competing providers to offer lower interchange fees, LevelUp appears to be the first to try and abolish the fees entirely, thereby gaining business advantage, compared to rival processors.


Scvngr previously had charged merchants two percent interchange fees for each payment, but it says that it will drop the fee to zero. 


That raises the obvious question of how Scvngr will rebuild its revenue model. Marketing services apparently are viewed as a viable new model. 


According to Seth Priebatsch, Scvngr CEO, LevelUp will run special campaigns for merchants, probably or typically running promotional campaigns for merchants, who will pay a fee for a customer taking advantage of the offer. 


It appears that Scvngr still is responsible for paying an interchange fee to the issuing banks that use the LevelUp platform, though. But Scvngr says its fee deals are affordable enough to allow trying such an approach. 


Such pricing disruption seems a perennial feature of the way new competitors try and disrupt pricing in a market, and has been a feature of applications and service competition in the messaging and voice markets for quite some time.