Home The Potential of Turning Mobile Money Into Mobile Apps

The Potential of Turning Mobile Money Into Mobile Apps

While it might be surprising to some, there are many things that we can learn from Boston-based startup SCVNGR. More appropriately, from its mobile payments business LevelUp. The company is rethinking the nature of transactions from the ground up with one distinct principle: transactions are data.

What is currency but the physical representation of a certain type of valuable data? That data changes hands through transactions and the transactions themselves create data about what was bought, who bought it, where and how. We can call this transactional metadata. LevelUp now has enough money flowing through its ecosystem where it can take the transactional metadata and turn it into programmable applications. As such, the company released an API last week so developers can applications on top of transactions. When you wrap your head around it, this is a pretty neat phenomenon.

The Value of Transactional Metadata

LevelUp is an app that lets you pay at physical merchants with your smartphone. Go to a Subway or Quiznos and order a sandwich and pay by having the cashier scan a QR code on your phone. SCVNGR founder Seth Priebatsch likens it to just another credit card although one that happens to live in your smartphone.

“What we started experiencing is that some of the larger brands using LevelUp were starting to push huge volume through it. In some cases we are starting to see more transactions through LevelUp than they are through America Express and we are closing in on MasterCard for a lot of them,” Priebatsch said.

As an app, LevelUp knows much more about your purchase history than any normal credit or debit card ever could. Creating this type of data, such as where and when you bought something, what exactly you bought, how often you stop at the merchant and what merchants are nearby, has tremendous value. Really, when payment processors think of the revolution of “smart” payments, this is the type of data they are thinking of. Square has its eyes directly on this type of data as well with its “Card Case” initiative and new analytics for merchants. The Google Wallet conglomeration and Google Offers are trying to add value to transactional data as are the big payment processors such as MasterCard, Visa and American Express.

The fundamental shift in the payments industry is making transactions rich with programmable data and then building services on top of it.

What kind of applications are we talking about? You probably have already seen the early versions. Loyalty programs, which have been in existence for decades, can tap into transactional metadata to offer targeted offers based on frequency of purchases and proximity. Warranties and receipts can become stand-alone apps or integrated into existing apps through some type of Dropbox-like integration. Reviews can become much more effective through existing services like Foursquare if transactional data is taken into account.

The idea of smart payments and turning transactional metadata into applications is not some half-baked dream. It is happening. For instance, look at what Reid Hoffman, Ali Rosenthal and James Slavet of Greylock partners wrote in a guest post in Forbes last week:

“The platform in this case is the payment network. Software developers will add new capabilities to cards by programming the payment network to link online applications to specific payment events. Consumers will be able to effectively ‘drag and drop’ apps to their smart cards in the same way that they add apps to their smart phones today,” the article said.

Two Sides to the Coin

We can talk about the value of payment methods until Armageddon but there are more sides to creating value from transactional metadata than how the purchase was made. It could be a QR code like LevelUp, NFC like the Google Wallet, a digital wallet like PayPal or Square, the method does not matter. The goal of each of these services is to create data that the networks can build on top of.

How is this data carried though? Transactions need vehicles to send that data to the appropriate cloud so it can be processed and sent back in the form of services, offers and applications so it can be of value to the consumer. In this case the point-of-sale (POS) system becomes tantamount.

One of the biggest knocks against NFC and the Google Wallet project is that it that the infrastructure to support it right now is limited. MasterCard’s PayPass terminals can handle NFC but the software needs to be upgraded to handle offers. The fact of the matter is that while payment technology is advancing, the POS systems behind it are the hubs of the transactional metadata and are behind the curve.

Square is working to change that with its Register iPad app. From a top-to-bottom integrated solution, Square has the future of payments figured out. It starts with the transaction method (with whatever input you might want) and it collects the information in the Register and administers it to its Card Case. The loop is complete. The next step for Square is to expand that loop to add more value.

LevelUp has come to understand that the POS system is tantamount as well. The API it released last week allows POS integrators and manufacturers to add LevelUp as a distinct option next to the likes of MasterCard, Visa and American Express.

“When it is integrated into the point of sale we can start giving the merchant analytics on not just the amount and the customer but what was actually purchased,” Priebatsch said.

By going straight after the POS operators, LevelUp takes the onus of integration out of the hands of the merchant. Square must rely on getting its Register iPad app into the hands of retailers while LevelUp can come pre-loaded straight from the POS vendor that has the possibility of creating scale very quickly. LevelUp should be announcing partnerships with some of the top POS vendors within a couple of weeks.

“These point-of-sale companies are saying that, ‘hey, our customers, both large and small, are requesting this so we are going to build a platform for LevelUp at the payment node. So, we support MasterCard, we support Visa, Discover and LevelUp and we are just going to build in support for that,” Priebatsch said. “When you get into platform level support that opens up many, many retail locations and opens them up to using LevelUp as well. So, that is really exciting.”

LevelUp is currently processing $1 million in transactions a month, a number that is very significant in its growth. Yet, LevelUp still has a lot of catching up to do if it wants to roll with the big boys. Square is now processing up to $4 billion a year and the payment processors see trillions of dollars between them flow through their pipes. But, the big boys can learn a lesson from little SCVNGR at the same time.

2012 will be the year that pilot programs are launched by many of the top payment companies and POS vendors (which sometimes are the same thing) and get actual systems into the hands of merchants. The dream: create an infrastructure where transactional metadata informs the entire ecosystem and creates value for everybody.

Top image courtesy of Shutterstock

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