Why Credit and Collections Are Holding Back Mobile Advertising

Having worked in the world of mobile advertising for more than 10 years, I’m astonished at the lack of progress in how the credit and collections function within mobile advertising networks has evolved, and lags so far behind the rest of the evolution in the industry. Whilst the way publishers acquire users and measure performance has evolved beyond recognition versus the early days, the way that networks run their finance function has seemingly remained largely unchanged.

Evolution of credit policies

To understand the context let’s quickly review the history of how mobile ads have been bought and paid for over the years.

In the early days, card payments were the norm for most small and medium advertisers. Credit or debit cards were debited frequently to pay for the ads and understandably minimize credit risk for the networks. This was clunky and expensive however as it did not 100% prevent fraud and was costly for the networks as the card processing fees ate into their margins. The model worked well for many developers to get started, and even as they started to spend more meaningful amounts on UA on these cards. If using credit cards rather than debit, they enjoyed the interest free period that the card would offer them, which would improve UA margins slightly and offset the payment delay from the app stores for IAP revenue, or ad platforms for IAA revenue. Go back 10 years to 2015 or even before and there were big spenders both in the US and Europe who chose to run their UA spend predominantly on cards. The best “trade” in the industry was where large publishers could run all their company’s ad spend on personal or corporate Amex cards and earn sometimes millions of airline points per month as well as up to ~56 days free credit! Suffice to say there are some folks in the mobile gaming and apps industry that will never pay for a flight again!

When it came to networks providing credit terms to publishers, this emerged slowly and steadily, very much from the traditional approach to providing trade credit. If a publisher had sufficient trading history, the company was well established (at least 1–2 years) and could share financials/tax returns, bank statements etc it may then be possible to secure a credit line. The process was vague — sometimes the invoicing option would appear in the dashboards, other times it would be arranged via sales reps — if the publisher was lucky enough to have one — and then the painful and manual process kicks in of document submission and manual review by credit analysts.

Changing attitudes

Some of the networks that were not (yet) public at the time had a slightly looser attitude to credit risk. Still privately held, they were more obsessed with top line revenue growth and market share as opposed to credit risk. Credit losses could be more easily hidden, so they were definitely keener for the business than listed networks like Google and Facebook at the time.

The architects of credit policies typically don’t come from within the ads business, and it almost seemed like they were somewhat isolated from it. Their approach always seemed very old school and it was a constant source of frustration from sales leaders within the major ad platforms, trying to secure larger credit lines in order to spend more on ads (and of course help them hit their personal sales targets). Of course, it wasn’t always just the size of the credit lines, it was also payment terms, which was generally much more rigid for all but the largest players. As breakeven periods got longer and publishers figured out how to buy efficiently over longer time periods, there was yet more pressure on credit teams due to the mismatch between ROAS breakeven periods and the rigid payment terms of the ad networks.

Fast forward to today, so what’s changed?

After lots of consolidation in the mobile advertising industry, the cream has definitely

risen to the top over the last ten years — many of those players became listed or PE owned, whilst others fell by the wayside. Given the increased scrutiny on financials and gloomier macro environment, credit is again being more carefully metered out, and there is also real pushback on any custom publisher terms awarded beyond Net30. In the past, extended credit terms could be more easily negotiated — effectively as a sales tool — but there is a real crackdown to try to bring those into line with standard parameters now.

The networks finally realized there was a better alternative to credit cards and have moved to use direct debits to fund pre-paid customers, which also serves to reduce fraud as well as cost due to the implied KYC behind setting up bank accounts that are being debited, and also owing to an improvement in the financial infrastructure over the 10 years making that possible.

Money is being left on the table

Yet a lot of money still gets left on the table. On one hand the networks have great visibility into how the games and apps monetize. Publishers can run predictive lifetime value (pLTV) calculations on the users they are acquiring from the studios, and with the move towards VO/event driven bidding, they could get the postback events that confirmed important parts of the revenue journey. But this certainly does not translate into how credit is offered to publishers, which seems to be much more one-dimensional in nature.

Smart publishers are becoming more cerebral in how they acquire users, with an emerging trend towards buying using pLTV models, rather than simple ROAS targets, and there is also a stronger focus by publishers on financial returns of UA, taking into account time value of money and cost of capital.

Whilst ad networks are not (nor should they be) in the business of taking the LTV risk on publishers, there does appear to be a real disconnect in the thinking between the credit and collections teams and the business, and also an opportunity to do it better.

The idea of a vendor finance program seems off the table — beyond ad hoc publisher incentives and negotiated deals/credit terms, advertising networks have not (at least visibly) offered any such programs to publishers at scale. Financing the additional spend then comes down to the publishers putting in place their own credit facilities or revenue based financing, or even equity.

Lack of education and modeling tools

Part of the issue here is that the publishers often lack the financial skills to model the outcomes and how best to finance them. There are a variety of external sources of capital available to fund user acquisition from specialist lenders, including factoring, revolving credit facilities based on cohort residuals, and future cohort financing.

If the ad platforms invested in educating their customers better with financial modelling tools and access to capital, this could be a relatively simple and incredibly powerful way to increase revenue without taking on any additional risk.

We’re at a pivotal moment

Ad networks are sitting on a treasure trove of monetization data and predictive signals. Yet, their credit and collections practices are out of step with reality — with rigid rules and outdated risk models. Meanwhile, forward-thinking publishers are optimizing for financial returns using pLTV and cohort-based metrics, but they’re left to source capital on their own which is stifling efficiency and leaving money on the table.

If networks created well planned data driven vendor finance programs — or simply partnered with capital providers and educated their clients — they could unlock significantly more spend without taking on more risk.

This isn’t about getting looser with credit. It’s about getting smarter. And in a tight capital environment, that’s where real competitive advantage lives.

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —

In the Mobile Finance Collective, we dive deep into topics like these, and so much more, in a more personal setting. Whether it’s over a virtual coffee ☕, one-on-one chats, or exclusive networking events, our community is where finance leaders in apps and gaming connect, share insights, and stay ahead.

Want to join and connect with industry peers? DM me to learn more about how your studio’s CFO or finance team can get involved! 🚀