LevelUp hedges its bets, supports NFC payments

LevelUp, the payment and loyalty startup, is betting that NFC is going to play a bigger role in mobile payments, perhaps not today but eventually. So the company is rolling out new merchant hardware that will handle both existing QR codes but also NFC payments from a handset.

The new LevelUp docks, which will go to new merchants first and then will replace existing hardware over the next few months, will be offered for free. LevelUp has almost 5,000 merchant locations where it handles payments and loyalty.

Seth Priebatsch, LevelUp’s chief ninja, said the move to support NFC was guided in part by the possibility that Apple was preparing to include the short-distance wireless technology in the next iPhone (s aapl). But while that appears to be less likely these days, Priebatsch said LevelUp is still interested in supporting a variety of forms of payment including NFC, which he expects will pick up momentum in the coming years. The NFC dock will also be able to be upgraded to Bluetooth 4.0 in the future if that becomes a popular method of payment.

“Do I think NFC will be consumer hit in six months? Definitely not. But in three to five years? Absolutely,” he said. “But whether we prefer QR code or NFC, I just want users to use what they use.”

LevelUp’s implementation of NFC differs from other systems like the Isis network developed jointly by AT&T (s t), Verizon (s vz) and T-Mobile. Instead of storing financial card information on the NFC secure element on the phone, LevelUp will only use the technology to initiate a transaction. LevelUp will use a rotating token to complete the transaction so no financial data is exposed. Priebatsch believes that’s safer because it doesn’t rely on the secure element. And it means that LevelUp is less likely to be blocked by the carriers or manufacturers, something Google (s goog) has struggled with on Google Wallet.

Users will be able to pay in two ways. When they arrive at a LevelUp dock, they will be able to tap their phone, which will open up their LevelUp app with the price of the transaction listed. The users can then complete the transaction by scanning a QR code on their phone or they can tap again to finish the purchase with NFC.

Priebatsch said he understands that NFC does little to optimize the actual payment experience over cash or credit. But the value is in the entire package for both consumers and merchants, he said. Consumers can get discounts on first-time visits or incentives to come back and pay through LevelUp. And merchants have a way to reach out to new and existing customers.

This is the latest move by LevelUp to make a splash in the mobile payment space. The company announced recently that it would eliminate interchange fees charged to merchants on transactions and rely on revenue from marketing campaigns. Priebatsch said 97 percent of its merchants are now running campaigns with LevelUp and for every $1 spent, businesses are generating $18 in trackable revenue. The company just added 800 new merchants in August. 

NFC for payments is still a ways off from being a mainstream tool. And for LevelUp, it doesn’t offer that much more convenience over the traditional method of paying with a QR code. But the move allows LevelUp to prepare for the future and get some mileage out of the “NFC” buzzword. But until more NFC-enabled phones are on the market and people become educated about how to use NFC at the point of sale, this won’t be that big of a deal for a while, if ever.