Loyalty platform Belly raises $10M from Andreessen Horowitz

There’s a brewing battle in the digital loyalty and rewards market but no one has really emerged as a leader in helping local businesses  retire their old punch cards. Andreessen Horowitz is laying down a $10 million bet on Chicago-based Belly, which launched last year as a provider of customized loyalty programs for small and medium sized business.

The money comes on top of a seven-digit Series A investment from Lightbank, the VC firm founded by Groupon (s grpn) co-founders Eric Lefkofsky and Brad Keywell. Andreessen Horowitz partner Jeff Jordan, former chairman and CEO of OpenTable and former president of PayPal, will join Belly’s Board. The new investment will help the company continue its growth, as it expands its current footprint to include New York and Boston. The company started in its home market of Chicago before expanding to Austin, Milwaukee, Madison, Washington D.C. and Phoenix. Since launching in August, Belly has amassed more than 200,000 registered users and has built up a network of 1,400 businesses who are using the system.

Belly gives local businesses a customized digital loyalty and rewards program that works with both smartphones and older cards with QR codes. Merchants set up an iPad from Belly at their check-out counter and then scan QR codes from a user’s Belly iPhone or Android app or from their physical card. The businesses award points for a person’s visits and then gives them unique rewards when they hit certain milestones. It could be anything from a free item to something as off the wall as punching the store owner in the gut.

Merchants pay anywhere from $50-$100 a month for the system including the iPad and stand. Business owners also get important data on their users, who can be tracked back and contacted through their email addresses.

Belly is not even a year old but there’s plenty to like about the system. I think the fact that it has both a mobile and analog way of letting people check into stores makes a lot of sense. About half of the U.S. population is still using feature phones so it’s good to have a system that accounts for them. The unique rewards and the iPad scanning station also make it appealing for businesses, who can create a deeper relationship with their consumers and hold on to more information about them.

But I’m also waiting to see how Belly can scale. The value of the card or the app is exponentially more valuable when there are plenty of businesses a user frequents in the system. With just 1,400 businesses in eight cities, that’s not the case yet.

Also, I think more social components would be helpful. I like how Social Passport provides users with a reward for checking-in via QR code or NFC tap and sharing their visit through their social networks. Right now, Belly business owners don’t have a way to get any viral boost from user check-ins. And there’s still the question OF whether a loyalty program needs to be tied to a payment platform. Services like LevelUp have built their own payment system and LocalBonus, a New York loyalty start-up, lets people sync their credit cards. Both are able to get more data on actual purchases and reward more specific activity than check-ins.

Ultimately, we’re seeing that there are lot of different ways to get at this market. Businesses can also choose free services like Foursquare and Yelp (s yelp). My sense is that a lot of these services will evolve to be more social and include more payment tools inside. But the key is making sure that you can sign up a lot of businesses. One-off loyalty programs are not that fun for users and having an app that’s only good at a couple stores is not much better for consumers than having a wallet full of punch cards.