Categories: Faster Payments

The Cash Flow Solution App Developers Don't Know They Need — But Do

The phrase “slow payment cycles” conjures up the image of old school buyer-supplier relationships and the 30- to 90-day payment window created by an inefficient paper-dominated cycle.

However, it probably doesn’t bring to mind the developer economy, because it’s such a thoroughly modern ecosystem it seems as though it would not have the same legacy problems that are such a headwind in the smokestacks economy. No paper checks or invoices, no physical delivery constraints — one might assume it’s a much faster payments environment.

The problem, Johnny Reinsch, co-founder and CEO of Qwil, told PYMNTS in a recent conversation, is that it really isn’t. Developers designing for one of the two firms that make up the “stable duopoly for control of the app market” (Apple and Google), or for one of the more “minor” app platforms (Amazon or Samsung) are still waiting to get paid, he said, sometimes for as little as 15 days, but sometimes for or as long as 90 days.

“And if you ask why aren’t Apple or Google or Amazon or Samsung offering faster payments, it’s because they have the leverage in the market not to have to,” Reinsch said. “There is no reason for them to change because the system as it is today works for them.”

However, it often doesn’t work for app publishers and creators, at least not the vast majority of them. While there are a handful of well-capitalized players that maybe represent the top quintile of the market who can wait on funds to flow in for as long as three months, small and medium-sized players are more actively hurt. Sometimes, Reinsch noted, they literally can’t keep the lights on and are forced to fold. More often though, the slow payments don’t kill the app developer or publisher — they stop them from growing, thriving or advancing much as they otherwise might have, simply because they are always trying to overcome that payments delay.

The situation is unfortunate, he said, but unlikely to change. It can, however, be mitigated — by applying good old-fashioned business methods to an emerging and expanding digital market.

A Better Solution

For the roughly 80 percent of app developers who can’t ride out a long wait to receive the revenue from their creations, the options for otherwise remaining liquid are limited. Bank loans exist, of course, but app creators face the same difficulty most small to medium-size businesses (SMBs) face when they walk through a bank’s doors. Unless you have been around for a while and are doing a few million dollars in revenue a month, a bank most likely isn’t going to be interested in underwriting a loan because they can’t make enough money on it to justify the overhead of financing it.

Venture capital is another path, and an excellent option for apps and app publishing companies that have something potentially lucrative or unusual enough to attract VC attention — but again, Reinsch said, that is a small percentage of firms. Plus, he noted, for firms that are profitable but getting crunched by cash flow, heading to VCs forces firms to dilute their ownership, creating a solution for a short-term cash flow issue that has long-term consequences.

Qwil, Reinsch said, is one of a few players in the market essentially offering a “third-way” tool for consumers.

“Our idea was to take invoice to net zero, which has been part of the supply chain for hundreds of years, and apply it to this segment which is an obvious fit for it,” he said. “We have good data from Apple and Google to verify what a developer’s revenue is going to be on a monthly basis — which means we can offer a liquidity-as-a-service product designed for the digital space.”

Apple and Google, the payors they deal with most often, are publicly traded and sitting on unfathomably large piles of free cash. They are a very low credit risk — if a developer has an invoice from them, Qwil can be confident it is going to get paid. Also, because that data is easy for them to access and verify, he said, it is a short cycle from the first call on the product to application online, to approval and to getting funded.

“They can customize if they are getting paid weekly, or daily — and [that] allows them to scale on their revenue without giving up equity of getting into a long-term lending contract,” he said.

Building Trust

Qwil isn’t the only financing product pitched to app developers, or, these days as interest in the segment has picked up in the digital space, even the only firm offering this service.

What Qwil does pride itself on, Reinsch noted, is offering a product that is clear, transparent and designed with an eye toward benefitting the digital economy by “avoiding usurious interest rates that pull firms into horrible debt.”

That, he said, happens more often than it ought to — usually through firms that offer terms that seem reasonable enough on the surface, but hide all kinds of transaction fees, setup fees and accruing interest in the terms of service (ToS) they count on their clients not to read.

“Our number one goal was offering something super simple with fees that are transparent and interest that is non-accruing,” Reinsch said.

Pricing, he noted, is complex, but can simply summed up with the idea that the industry standard is 1 percent to 3 percent a month, or an average APR of 12 to 24 percent (though he noted that APR is not the best way to express this, since Qwil does its charging through single monthly fees). That, he said, is it, the entire fee structure broken down in a nutshell.

It is still a concept Qwil has to explain — how much, he said, depends on how large and sophisticated a development firm is and how badly they are being bitten by the extended payment wait times.

However, what firms don't need explained to them, he said, is the problem. They build a product, invest in advertising it, see returns on that advertising and their product starts to pick up momentum. It would be a great time to strike while the iron is hot and push even more ad spend, but they can’t — because they have two weeks to three months to wait before the funds they’ve earned come back to them.

The iron is cooled, and growth is going slower than it has to.

“Developers know they want a solution to that — because it is impossible for them to ramp up spending when they need to if they are always cash poor,” Reinsch said. “And without that strategic ramping, 99 percent of apps are never going to be able to really grow their user base. We think we can help them make that possible.”

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