To hear LevelUp‘s Seth Priebatsch tell it, the mobile payment revolution is less about buying a donut without swiping a credit card and more about the treasure trove of data that can be gathered from our smartphones. Now that his payment processor-slash-loyalty play serves over 500,000 users and 4,000 merchants, Priebatsch is excited about what LevelUp can do to look beyond mobile payments and develop a true “smart wallet.”

First, a caveat. In the grand scheme of things, half a million users isn’t particularly large – a fact that Priebatsch readily admits. “They are big numbers. Half a million people is not a small number of people, but they’re also tiny numbers, because the space we’re playing in is so absurdly large,” he says. “It’s numbers like… Space is really big. It’s unimaginably, absurdly big, and then you take that and multiply it by 10, and it’s still bigger than that.”

Half a million users provide enough information to start (key word) implementing LevelUp’s vision for the future of payments, however. The idea is that by using data it has gathered on its customers’ purchase histories, LevelUp can move beyond the “Hey, I just bought a macchiato with my phone!” age of mobile payments and evolve into a discovery platform.

The first example of tailoring the platform to suit customers’ needs spun out of Priebatsch’s obsession with data. Self-describing himself as a data geek, he says that he would spend Saturdays looking over the data to find patterns when he noticed a trend: People stopped buying things when it rained. So, rather than accepting a sharp downturn in what people would buy, LevelUp started a campaign offering “incentives” (cash off, loyalty-based rewards, etc.) to convince people that the trip to the cafe or bakery was worth it.

This rainy-day initiative is only the beginning of LevelUp’s personalized future. Users might be able to switch to a “money optimizer” mode that could grab their location and help find the best place to eat based on possible loyalty rewards, price, and how often you’ve eaten there before. Or, to go in another direction, LevelUp might be able to recognize where you tend to splurge a little and help find similar places when you want to mix it up a little.

All told, LevelUp’s evolution closely follows that of Foursquare. What began as a simple service that helped users answer a simple question — “Where are you?” — and a few badges and achievements is becoming a tool that instead answers, “What do I want to do?”

By the same token, LevelUp has morphed from “What are you trying to buy?” to “Hey, would you like to buy this?” Like Foursquare, LevelUp is reaching the point where it feels prepared to transition from asking a question and waiting for a response to preemptively offering its best guess for what you may like to do. It’s almost as if the magic mirror from “Sleeping Beauty” simply shouted “Kate Upton!” (don’t you judge me) whenever someone opened their mouth.

If the company is able to pull this off – a big “if,” considering the size and scope of the mobile payments race – it could nail discovery in a truly “frictionless” way. You don’t need to push a button or add a location to LevelUp for the service to know that you’re there; because the company is handling your payments, it’s already well aware of your location, what you tend to buy there, and how often you tend to visit.

Mobile payments aren’t the “be all, end all” of LevelUp, they’re simply a vehicle for this social discovery aspect. Sure, half a million people are using the service because of the mobile payments product, but that’s only phase one. The company doesn’t want to be just another “credit card killer” – it wants to be a data-rich, personalized wallet that helps to improve anything that requires money changing hands.

[Image courtesy cogdogblog]