First Trade Union Bank is developing a custom mobile payment application that will enable customers to pay for purchases and unlock special offers at 4,000 merchant locations.

The new app will combine the Boston-based bank’s existing mobile banking application with LevelUp’s mobile payment solution. As mobile payments continue to grow, banks such as First Trade Union are looking for ways to be a part of the equation.

“It’s hard for Amex, Mastercard, Visa or Discover to build a compelling mobile play because they don’t really own the merchants – that’s the processors – or the consumers – that’s the banks,” said Seth Priebatsch, founder of LevelUp, Boston.

“We’re working with acquirers already to reach out to merchants which is great for them, because they own that relationship and can sell anything, credit cards, gift cards, mobile payment etc. with equal – often more – profitability,” he said.

“The banks have an equally powerful play in terms of owning the consumer relationship and bringing them a valuable mobile infused payment offering.”

Driving further convenience
The bank’s mobile payment app is currently under development and will be integrated with both the First Trade Union Bank debit card and its mobile app. It will be the first LevelUp-powered mobile payment solution introduced by a bank.

By leveraging LevelUp’s technology, First Trade Union will be able to enable its customers to access LevelUp’s network of 4,000 merchants. As a result, the bank will be able to create closer ties with local businesses and drive further convenience for mobile customers.

In addition to paying for purchases, users will also be able to unlock exclusive offers designed to drive customers into retail stores.

The LevelUp app, which recently achieved 500,000 users, gives users a way to pay for purchases by showing a QR code on their screen which can be scanned at the point of sale.

One of LevelUp’s points of differentiation from other payments offerings is that merchants are not charged an interchange fee for payments made via the app.

The First Trade Union Bank mobile payment app is scheduled to be available early next year for use on any iPhone or Android device.

Banks test payments
A few other banks have also started to experiment with mobile payments.

For example, Bank of America is testing a mobile payments solution enabling users to pay for in-store purchases by scanning a QR code at the cash register using their phones via a partnership with Paydiant (see story).

Additionally, Barclays bank in Britain is giving customers a way to pay for small purchases with their mobile phones at a variety of merchant and transit locations via NFC tags (see story).

“We’ve got 500K users which is great, but it also means we’re missing 309MM users,” Mr. Priebatsch said. “Banks have those users and are the trusted resource to introduce an innovative product like ours.

“Banks have no love lost for the credit card networks and working directly with them presents a great opportunity to build the relationships with consumers and banks to start considering a direct to checking account payment method,” he said.

“We’re not doing that right up-front, but it’s definitely in our roadmap and this is the first step to getting there.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York