Koala Pay is a mobile app system that will be launched this month in Iowa City. It gives local merchants an opportunity to track the items their customers are purchasing and also give them special offers. (Courtesy image)

A new mobile payment system developed in Iowa City will be launched this month at five Corridor merchants, offering merchants a new way to build closer relationships with customers.

Koala Pay lets customers pay for transactions using a smartphone app that automatically deducts the payment from a linked checking account over the Dwolla payments network.

The baseline processing fee of 2.75 percent is a better deal than credit card processing for merchants, say Koala Pay founders Troy Miller and Josh Cramer. The biggest value of Koala Pay, however, lies in the back-end analytics that allow merchants to easily see who their best customers are, what they like to buy, and when.

Merchants can then use Koala Pay to inform customers via smartphone of Groupon-like deals in the form of virtual prepaid cards. They can also use the system to offer loyalty payment credits, or to offer such credits to win back customers who had a disappointing experience.

Smart phone-based payment systems are an exploding space in web commerce.

“It really is a land grab,” Miller said. “We’re looking to be part of that excitement, not just of being able to offer a new product but to give merchants a new way to serve their customers the way the customer wants to be served.”

Yotopia Frozen Yogurt at 132 S. Clinton St., Iowa City, will become the first merchant to offer Koala Pay in a private beta — only family members and friends will be able to download the app and use it for purchases, within the next few days.

The next round of merchants to use the product in a week or two will include Moped U, a moped rental company in Iowa City, and Diamond Dreams, an Iowa City-based sports academy.

Koala Pay has met with 60 Corridor businesses interested in using the mobile payment system. Miller himself will use the system at two of his businesses, Isaac’s Creamery and Naomi’s Kitchen, both of which are in North Liberty.

The Koala Pay app will be available for download within the next two weeks on Apple’s iPhone app store.

The initial version of Koala Pay will offer consumers the ability to find and purchase deals in the user’s vicinity in addition to making purchases. A subsequent upgrade will add the ability to offer virtual gift cards and track rewards points.

Consumers will have some privacy controls, including the ability to control which merchants’ deal offers they choose to view.

Future developments planned for the system include a “loyalty score” merchants can use to determine their most loyal customers based on more than just purchases. It will draw from seven different factors, including a social media weight based on the number of times they shared the merchant’s Facebook page.

A four-member development has been working on Koala Pay with Miller and Cramer over the past 11 months.

“It’s not for the faint of heart,” said Cramer, who’s software development company is called Cramer Dev. “There’s a lot to wade through.”

Cramer acknowledged there’s no shortage of competition in the mobile payments space, but says the rapid growth in mobile commerce makes it a promising opportunity for a startup.

More Americans are embracing mobile payments using smartphones. Widespread adoption of mobile payments will make it possible for customers not only to carry less cash and credit cards, but also to leave behind the loyalty punch cards many merchants offer, Cramer said.

Cramer and Miller plan to present a Koala Pay demonstration at a Dwolla Meetup at 6 p.m. Nov. 30 at the Vaudeville Mews in Des Moines. Participants will be able to download the app and link to their checking accounts in the minutes it takes to make the presentation.

The Des Moines-based Dwolla payments system has over 100,000 users.