The Platform is a regular column by mobile editor Dan Rowinski. Ubiquitous computing, ambient intelligence and pervasive networks are changing the way humans interact with everything.

Welcome to The Platform, a new column by ReadWrite mobile editor and senior writer Dan Rowinski on how ubiquitous computing, pervasive networks and the power of the cloud are fundamentally changing everything.

Extraordinary power is found in people’s pockets these days. The ability to tap any piece of information, contextualize any act or help make a decision is just a swipe away. Human behaviors, industry verticals, acts of communication and promises of the future are all touched by the rise of powerful computers and sensors.

Look at what’s happening in technology: Everywhere you look, cheap and potent computers are infiltrating every aspect of our lives. Our cars, our clothes, our factories and storefronts, our eye glasses and our wrists. Smartphones and tablets are just the beginning of the evolutionary shift where all the elements that touch our lives are digitized, gadget-ized, hooked to the Internet and computed in the cloud. The impact have profound consequences—positive and negative—that we can only begin to imagine.

The Platform will examine this epoch shift, providing commentary and analysis, reporting and critique. The Platform will be a resource to the curious and the creative, the builders and the artists.

You’re out running errands on a Saturday morning. You’ve spent the day shopping for new clothes to add to your new spring fashion. On your way around town, you probably stopped for coffee, a sandwich or a pack of gum. You may even pop into the hardware store to grab some nails to hang a painting at home, or the local Wal-Mart or Target to get a new laundry basket. So what do all of these activities have in common?

You’re spending money.

As you’re completing your errands, you’re performing the same action at any given stop. When it’s time to check out, you reach into your pocket and pull out your wallet. You hand a debit or credit card to the cashier, or maybe cash. Chances are, you’re not reaching for your smartphone to pay.

Three years have passed since the notion of mobile payments—paying at a physical retail location with your smartphone—reached the height of its hype cycle. In 2011, the talk on entrepreneurs’ lips was that technologies like smartphones, mobile wallets, QR codes and Near Field Communications (NFC) would soon fundamentally change how people make transactions.

The reality of getting people and stores to actually accept mobile payments, however, has been a different reality entirely.

For technologists, the thought of upending the way people pay comes down to two factors: 1) Money is essentially a data science; and 2) Technological advances and ubiquitous computers provide the platform to change a fundamental human behavior.

Still, each company that has tried to jump into the payments fray has learned one resolute and inarguable fact: Payments are hard.

4 Examples Of Struggle

Humor me while we do a little blind comparison of four companies that have attempted to gain traction in the payments space. All four have run into different problems that tend to plague most company that try to break into the payments space.

Company A started as a geo-location game similar to Foursquare, but after a couple of years of mediocrity, it pivoted to payments with an app, a merchandizing formula and QR codes. Today, it continues to grow but has not achieved the type of scale that its investors had envisioned.

Company B started bringing credit card payments everywhere five years ago by attaching a card-reading dongle to people’s smartphones and tablets. The company raised more than $300 million in funding, achieved immense scale and popularity, but despite processing $20 billion in payments last year and making $550 million in revenue, still was in the red in 2013—to the tune of $100 million.

Company C started as a classroom project at Stanford by a wunderkind founder that thought he could change the way people pay with their smartphones. The company raised the largest seed round in the history of Silicon Valley startups and proceeded to go through one controversy after another. Despite the hype and promises, the company has yet to release a product.

Company D imagined a way to change how smartphone payments are processed at physical locations that don’t have QR code scanners or NFC. It raised an over-subscribed $10 million round and began to make partnerships and ship its dongles. The venture capital and technology communities applauded it but saw it as a stopgap invention on its way to more credible solutions.

Company A is Boston-based LevelUp, which used to be SCVNGR before it folded up that part of its business. Company B is Square, the dongle-based smartphone payments system started by Twitter co-founder Jack Dorsey. Company C is the travesty that is Clinkle, started by Stanford graduate Lucas Duplan. Company D is called Loop, which uses a dongle/smartphone case approach to allow for ubiquitous mobile payments by tapping into a point-of-sale system’s existing electromagnetic card scanners.

Each of these companies has issues. Whether it’s revenue and profitability (Square), achieving meaningful scale through a sales technology platform (LevelUp), drumming up consumer-side adoption with an in-between technology solution (Loop) or just getting out of your own way to actually create a business (Clinkle), all of these payments companies face unique challenges.

But these companies aren’t alone in their hardship. Google took at stab at mobile payments with its NFC-based Wallet, but has not been able to break into retail locations like it would have hoped. Cellular operators like T-Mobile, AT&T and Verizon created the Isis mobile wallet with NFC, which was basically dead on arrival. What we are seeing across the entire payments technology ecosystem is that most of the basic tenets of business are extremely difficult.

LevelUp & The Slow Path

Boston-based LevelUp made a lot of noise in 2012. It touted its new platform as a mobile wallet that can be used at participating locations by scanning a QR code, but its goal was to create a world called “interchange zero,” where the cost of making a transaction is 0% of a purchase (most payment processors like Visa or Mastercard charge around 2.75%). LevelUp hired a large sales force and invested in turning its app into an open platform that retailers could implement both online and off.

For the next year and a half, LevelUp was hardly heard from. You would see it in the wild on occasion (especially in the Boston area), but CEO Seth Priesbatch and his crew did not make many waves in 2013.

Last week, Priebatsch invited ReadWrite to LevelUp headquarters to talk about progress. The small payments company was very candid about its numbers, showing progress while acknowledging it is not yet profitable and that it’s had to make adjustments in its approach to dealing with market realities.

Here are some of the numbers that show the traction that LevelUp is getting:

14,000 merchants in the U.S. accept LevelUp, though not all are active.

LevelUp is integrated into 50 point-of-sale partners.

The average transaction is a little less than $10.

About 10% of all charges are redeemed credit through LevelUp’s rewards and loyalty marketing program for retailers.

LevelUp makes 25% of every dollar of redeemed credit. For instance, if a user spends $100 through the app and 10% of that is redeemed credit, LevelUp makes $2.50.

Most merchants accepting LevelUp in the U.S. are in the food industry.

LevelUp is processing about 600,000 transactions a month.

As of last week, LevelUp charges 1.95% for interchange. This means Levelup’s back-end interchange rate has dropped from 5.2% in February 2013 to about 2% today. LevelUp has lowered its own interchange rate by aggregating individual consumer purchases together over a period of time to lessen the interchange on any single purchase.

LevelUp also has an open software developer kit (SDK) where developers can build apps using LevelUp as a processor without necessarily using the company’s marketing and loyalty programs. Priebatsch recognizes the value in being the pipe and he is fighting to lower interchange to bring in more volume for his platform.

If we compare LevelUp with a company like Square, the difference is almost laughable. But LevelUp is making money (if only in small amounts) and it has made the decision to focus more on engineering (about half of the company’s 85 employees are engineers) and relied less on a robust and expensive sales force to push its product, moving most of its sales into its partner channels. LevelUp is making incremental steps, which is not bad for a company that spends next to nothing on marketing and advertising. Priebatsch estimates the company will be profitable within the next year or so.

The case for lowering interchange by companies like LevelUp is a strong one. Let’s take the case of Square, for instance. Yes, it is doing $20 billion in transaction volume, but losing $100 million last year is significant. Square tried out a program with smaller retailers where it would charge $275 per month as a flat interchange rate. As ReadWrite editor-in-chief Owen Thomas predicted when the program came out, Square lost a bundle of money. In February, Square quietly did away with the program and now charges industry-standard 2.75% per transaction. Merchants—like 1369 Coffee House in Cambridge, Massachusetts—saw its interchange fee rise from $275 to well over $1,000 for the month.

LevelUp doesn’t want to make money off interchange, but rather take a slice of your marketing and loyalty budget. It may seem like fuzzy math, but if you charge nothing for interchange and take 2.5% through a marketing program, isn’t it just replacing the interchange? Well, yes and no. Most merchants are going to have some type of marketing budget anyway, where they pay some third-party to provide a solution. LevelUp wants to be that third party.

The Adoption Quandary

Quote Of The Day: “I hold that the mark of a genuine idea is that its possibility can be proved, either a priori by conceiving its cause or reason, or a posteriori when experience teaches us that it is in fact in nature.” ~ Gottfried Leibniz, creator of calculus.

Every time I talk to a mobile payments company, the same question comes up: Is growth happening from the consumer side, or the merchant side?

It is this type of chicken-and-egg question that typifies the adoption of any platform, mobile payments included.

The historical route to scale adoption has been to make partnerships with major players like banks, payment processors, merchants and technology companies like Apple or Google. A large sales force is needed to actually get the payments system into merchant locations and point-of-sale providers. Going down the partnerships and sales route is logical for these companies because, we have to realize, these are businesses with targets and goals. It is much easier to stand up at the quarterly meeting and list off all the deals you have made with tangible businesses than to point at vague charts of consumer adoption (which is something social-based startups thrive on).

In payments, it is very difficult to scale from the consumer side. Companies need technological solutions that are ubiquitous and without barrier. If I can use my Square or LevelUp wallet at one merchant but not another, I am less likely to use it at all. Technological ubiquity across the entire landscape just does not exist for these would-be disruptors of how you pay, and the key holders—Visa, MasterCard, American Express, et al—are not too keen on opening the door too widely for companies that could cut into their bottom line.

Payment companies’ worries naturally turn to merchant solutions, which play in the same realm as the companies they are trying to disrupt. Focus turns to interchange and marketing, loyalty programs and gadgets. If I can put a QR scanner or a dongle in your store, I win that store, right?

The case for Loop is that it wants to eliminate those technological barriers, providing a solution where a merchant doesn’t need a LevelUp scanner or a Square card reader or NFC. But its dongles and cases are neither practical nor convenient. Like just about everybody else in the payments space, Loop is a technology trying to change a behavior that doesn’t necessarily need to be changed.

No matter how the problem is sliced, the basic fact keeps coming up over and over again: Payments are hard. Adoption, revenue, consumer and merchant behavior, partnerships, sales, advertising and people are simultaneously the largest enablers of the changing landscape of payments… and also its biggest inhibitors.

This article has been updated to reflect that LevelUp takes 25% of every dollar redeemed for credit.

Lead image courtesy of Reuters