PrePay Mobile Payment App Begins Shutting Down On December 31st

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I hope PrePay users read their email closely. Otherwise they may have missed the alert that the I/O Ventures-backed merchant loyalty and payment app is closing down and any prepaid credit will evaporate at the end of the year. PrePay got you discounts at local businesses by paying up front. You could get $100 of credit for $75 at your laundromat. But no more. You can’t buy credit or add recommendations anymore, and the whole service will go dark on New Year’s Eve.

[Update: We've heard from the company. Some of this article is wrong. Here's what's going on, in the company's words:

* Balances are not going to be wiped out
* All that's changed is that you can't buy new credit
* Refunds are going to be given starting January 1, 2013 so that our users have a chance to use all their credit, which includes the free bonus credit they receive every time they purchase credit
* There are no social sharing options hidden at checkout, it's under settings, it's off by default, and is only for Facebook]

PrePay made a big push to sign up local businesses over the last year, especially in San Francisco. But it invoked my ire with its spammy social sharing system.

See, sharing to your connected Facebook accounts happens by default when you pay. You can opt out, but the buttons are on the final screen before your payment goes through — the screen where you hand your phone to the merchant and they punch in their code and confirm. So unless you opt-out before you hand over your phone, the merchant accepts the payment and all your friends find out you spent $40 for wash-and-fold rather than doing your own laundry.

The mobile merchant payment space has gotten awfully crowded, too. LevelUp, Venmo, and a host of other small startups, Pay With Square, and soon Apple Passbook. Maybe it was a lack of traction, the looming competition, the founders’ hearts weren’t in it, or they just wanted to pursue something else.

Regardless, it could have more prominently announced it plan to fold at the end of 2012. No tweet, no Facebook Page update, no blog post (it doesn’t have a blog), and it doesn’t even warn you when you open the app. There was just the email, and a tiny “CLOSING: 12/31/2012″ line of text on the merchants listed in your wallet.

That’s pretty irresponsible considering you have a PrePay balance for each merchant, and could have anywhere from $25 to hundreds of dollars sitting in their accounts that will be vaporized in 4 months. Data portability is becoming a big deal for content startups when they shut down. Payment startups should take even more care to make sure they don’t leave users high and dry.