Game mechanics can cull interchange fees, SCVNGR head says at DMA 2011

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Gamification, the use of game design techniques and mechanics to solve problems and engage audiences, can affect the end of interchange fees that are levied on merchants by credit and debit card companies, Seth Priebatsch, chief ninja (actual title) of mobile app company SCVNGR, told attendees at Geekend, a technology-focused event that was part of the Direct Marketing Association 2011 Conference & Exhibition in Boston.

Companies including Visa, American Express and MasterCard receive roughly $50 billion in annual revenue from interchange fees, with those fees generally ranging from 3-10% of a transaction, Priebatsch said in his Oct. 4 keynote.

“There are so many inefficiencies in the system that a parallel interchange can make headway,” he said.

Priebatsch said companies could reap roughly 20% more revenue under the Interchange Zero model, pointing to SCVNGR's LevelUp product.

Interchange Zero is “the theory that money will eventually flow without friction,” Priebatsch said, adding that the theory could be made a reality via a “mashup of the game layer and transactions.”

LevelUp credits consumers with merchant discounts and incentivizes return business by increasing the discounts when a consumer follows up on his initial purchase. SCVNGR expanded LevelUp to San Francisco and New York on Oct. 4, said Priebatsch. Since its launch on March 10, the program had been available only to merchants and consumers in Boston and Philadelphia.

Consumers spend 20-25% more at a business when using LevelUp, he said, while 40% of LevelUp users return for a second purchase within 30 days of the initial transaction.

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