Sovereign Bank gained a foothold in the race to replace plastic credit and debit cards this month, through a partnership with a mobile payments start-up company. The regional bank, a unit of Spanish financial giant Banco Santander, launched a "First in Mobile Wallet" promotion with Cambridge-based LevelUp. Sovereign customers who link their eligible debit MasterCard accounts to their LevelUp mobile apps will enjoy a $10 bonus to spend at participating merchants.

LevelUp bypasses the wallet by combining mobile payment technology with vendor loyalty rewards. The system resembles the popular Starbucks mobile payment application, but made widely available to independent merchants. New customers launch the LevelUp app on their iPhones or Android devices, taking a picture of a debit or credit card to link with their accounts.

Ditching the plastic for the smartphone

To make a purchase, LevelUp users launch the app and select a tip amount, if appropriate. The app then generates a unique payment code which vendors can scan with companion point-of-sale devices. LevelUp gives merchants the option of adding loyalty rewards, replacing or supplementing existing loyalty promotions, such as punch cards. Many of LevelUp's vendors offer discounts for first-time customers, along with bonus rewards for reaching spending thresholds.

LevelUp's promotion with Sovereign works the same way, crediting eligible customers with an extra $10 to spend at any of more than 2,500 merchants in LevelUp's network. Merchants pay LevelUp a flat, 2 percent processing fee on all transactions, as much as a third less than comparable credit card processing solutions for smaller food and retail vendors.

Santander officials told reporters that they planned to align the promotion with the Boston Harbor Association's Summer on the Waterfront campaign, running from June through the end of August. LevelUp now manages payments for merchants in 17 cities, including Boston, Philadelphia, and Atlanta. Though backed by Google Ventures, LevelUp has not indicated whether it plans future support for Google Wallet, Mountain View's NFC payment platform.