LevelUp looks for success as the “Android of mobile payments”

Seth Priebatsch, the chief ninja (yes, that’s his title) at mobile payment startup LevelUp has a theory on how it can come out on top over rivals like Square. And it comes down to being the Android of mobile payments, a title he believes taps the openness and flexibility of Google’s (s goog) mobile operating system.

We’re seeing the latest example of that today with news that LevelUp is integrating its payment services into a new mobile banking app for First Trade Union Bank, which operates largely in New England. It’s the first time that LevelUp is powering mobile payments for a bank though it’s hoping other financial institutions will follow suit. The new app, which will debut early next year, will allow First Trade users to pay for things with their phone at 4,000 merchants and get exclusive offers from their bank.

Openness leads to opportunities

LevelUp, mobile payments

The deal is made possible by LevelUp’s white label app, which it introduced earlier this year. Customers can integrate LevelUp into their existing apps or turn to LevelUp to do the integration or create a new app. First Trade is just the second customer to announce it’s using LevelUp’s white label tool, but Priebatsch said many more are in the process of integrating with LevelUp for next year.

LevelUp also released its own API to allow point of sale makers to integrate LevelUp as a payment source. It is now integrated with three of the top POS makers including Micros, Positouch and Dinerware POS Systems, which cover 30 percent of all POS systems. It also incorporated NFC alongside QR codes for people who want to pay with a tap of their phone.

By opening up, LevelUp is able to be used through multiple apps, which widens its reach for consumers. It also means it can get inside stores quickly by tapping existing hardware. LevelUp can also offer merchants their own LevelUp dock for accepting payments. The POS integration was a key part in getting LevelUp installed at the KFC Yum! Center arena in Louisville, Ky, which utilized its Micros point of sale systems to deploy LevelUp.

Priebatsch said LevelUp is fine being flexible if it means it can scale up over time the way Android has. Android has become a world beater in part because it’s open to manufacturers, carriers and developers who can build on top of the operating system.

“We aren’t the app; you can have a white label app. We aren’t the POS; we work with POS makers.  We are the payment method but we’re not the processer on the back end,” Priebatsch said. “We’re trying to be Android, so we can partner with everyone.”

Competing with Square’s iPhone approach

LevelUp, mobile paymentsIf LevelUp is the Android of mobile payments, Square would be the iPhone (s aapl), said Priebatsch. Square has been lauded for its focus on design and a seamless user experience. And some of that comes from keeping much tighter control on the product by not opening up an API or building all of its services in house. Keith Rabois, Square’s COO told me in an interview earlier this year that one of Square’s strengths is building the whole experience, so it can be optimized to reduce friction for users.

“If you craft an experience end-to-end, it just works out of the box,” Rabois said.

We’re still early in the process and no one knows which approach will win out. Square has gotten a bigger boost with its own Square Wallet app thanks to a big partnership with Starbucks, which is also an investor. It’s the first partnership Square has done though others are likely to follow.

But Rich Miner, a partner with Google Ventures and an investor and board member in SCVNGR, the company behind LevelUp, believes that Priebatsch’s method is the way to go. This shouldn’t be surprising considering Miner founded Android, before selling it to Google. But he believes that LevelUp’s approach allows it to appeal to a wider customer base of medium and larger businesses who are trying to incorporate mobile payments and may not have the knowhow.

Race to ubuiquity

LevelUp, mobile paymentsBut, LevelUp has a long way to go to replicate Android’s success. The company has just 500,000 users and is handling about $5 million a month. That’s still not a mainstream hit. The challenge, Priebatsch admits, is for LevelUp to scale up quickly in the next few years. “People only have so much patience they give to LevelUp before they expect to it to be ubiquitous. I think we have two to four years before we have to deliver to our users a damn near universal experience,” Priebatsch said.

Priebatsch is hoping the LevelUp POS integrations can power it to a big year in 2013 and hopefully to profitability by the end of the year. He’s also hoping LevelUp’s decision to kill interchange fees for businesses who run marketing and loyalty campaigns will also build momentum in the next year.

But, as with Android, there are disadvantages to being open. It’s harder to ensure a consistent and quality experience across every LevelUp transaction. And as we’ve seen with Android browsing and shopping data, having the most marketshare doesn’t necessarily lead to the most usage. But it’ll be interesting to see how LevelUp and Square compete with their different approaches. With mobile payments so new, it’s good to throw different ideas up on the wall and see what sticks.