If a report by the Pew & American Life Project is to be believed, two things are clear: The mobile payment future is upon us, and getting from here to there won’t be easy.

Pew’s report, The Future of Money in a Mobile Age, came out earlier this month and was nicely covered in a two part series by Dan Rowinski at ReadWriteWeb. The report surveyed experts on the future of mobile payments, 65 percent of whom agreed that:

By 2020, most people will have embraced and fully adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards.”

But while mobile payment may be the “next logical step” according to the report, the challenges in taking that step are numerous. Both the opportunities and the challenges in the mobile payment space can be seen through the lens of Boston-based LevelUp, the mobile payment and deals app by SCVNGR.

I know my colleague Greg Gomer has been critical of the company and the app in the past, but I don’t buy it. And more importantly a lot has changed since then.

Briefly, here’s how LevelUp works: once you download it for iPhone or Android you put in your credit card information. LevelUp then generates a unique QR code. When you open the app on your phone, that QR code appears. LevelUp vendors are equipped with a phone that can scan your code, so you and the cashier simply hold up the phones, your QR code is scanned, and you’ve paid by credit card.

Having added some big talent and with $1 million in transactions in a month, the company has some momentum, which leads us to ask two questions: 1) Why does LevelUp work? And 2) What will it take for LevelUp to scale?

I’ll be talking to LevelUp this week about that second question (though this Rowinski post will give you a preview) but here’s my take, as a new LevelUp user, on why it works today, at least for customers. I’ll get into how it works for businesses in a future post.

Why LevelUp Works for Customers

The central tension here is finding the sweet spot between ease and value-added. Make mobile payments too different and consumers won’t bother to give it a try. Make it too similar and they’ll wonder why it’s worth it to switch. LevelUp nails that balancing act.

It gives me something extra without forcing me to change much at all. Here are the three key parts of LevelUp’s strategy as I see it:

Deals

When you use LevelUp, you save money. You’ll save a few bucks on your first purchase at an establishment (and get hit with an email notification spelling out what you saved) and you’ll win more discounts by loyally using LevelUp at the same business.

Tapping Into the Existing System

Unlike some mobile payment models, LevelUp isn’t asking you to transfer money to a special account. Just put in your credit card information and you’re done. In this way, it’s really just a way to use your credit card without the plastic and with the added savings from deals.

Targeting Early Adopters

By targeting major urban areas, LevelUp has made itself available in key areas for early adopters. This is a market that perceives a benefit from mobile payments just by virtue of the fact that it’s the next thing. This is an obvious strategy, but it’s important.

I used LevelUp at a coffee shop in the Innovation District the other day and asked the barista how frequently customers pay that way. “A few a day” was the answer. That’s in one of the most tech savvy neighborhoods of one of the most tech heavy cities in the world.

The key challenge for LevelUp/SCVNGR will be to take their app mainstream. That’s what I’ll be talking to their team about this week.

But in the meantime, LevelUp works because it gives me a reason to use it – deals and cool early adopter cred – without asking me to meaningfully change my financial setup. If you’ve used it, let me know what you think, and if you haven’t give it a try. I use it for my daily cup of coffee at Barringtons, but you can see the full list of participating businesses in Boston.

What do you think? Are you with Gomer or with me? Does LevelUp work for you?