TriumphPay, the payment and processing arm of Triumph Bancorp, has completed its first round of what it is calling “conforming transactions,” in which the infrastructure it has built organically and through the acquisition last year of HubTran completed a fully automated “soup to nuts” factoring payment.
CEO Aaron Graft took the occasion of the company’s fourth quarter 2021 earnings call Friday to publicly disclose the transactions, which have all been done this month. He likened it in terms of technological advancement to the placing of the first telephone call, when the famous words “Mr. Watson, come here” were uttered by Alexander Graham Bell to his assistant.
In an interview with FreightWaves after the conclusion of the earnings call, Melissa Forman, the company’s chief strategy officer, said five factoring companies were involved in the conforming transactions. She declined to identify them.
However, Forman supplied to FreightWaves a comment from Derek Stanley, president of Engaged Financial, one of the companies involved in the first round of conforming transactions. “This is just as exciting and impactful as the first time we landed on the moon,” Stanley said. “We look forward to more conforming transactions coming through the TriumphPay Payments Network.”
Forman said the conforming transactions have solved the long-standing issue of making factoring payments without a bevy of phone calls. That process would not only need to be undertaken to get information into the hands of the payers and payees in the factoring transaction. But as Forman noted, it was also necessary for validation that the freight transaction actually took place and on what terms.
Being able to put together a conforming transaction would have been possible without the HubTran acquisition, Forman said. “But it would have taken several more years of development that HubTran had invested.”
HubTran’s role both before the acquisition and in the conforming transactions is to audit invoices that are to be factored, confirming the validity of the details of the deals and the parties involved in them. HubTran’s name has been changed to TriumphPay Audit.
“HubTran brought with it the institutional knowledge and technical talent to understand how you audit an invoice and how to make sure the payer and the payee agree on what the invoice says,” Graft told FreightWaves after the earnings call.
With the ability to audit a deal and conform its details now combined with the quick pay and processing capabilities of TriumphPay, the conforming transactions were able to get done just six to seven months after the HubTran acquisition closed.
On the earnings call, Graft said there are 11 more factoring companies that are waiting to begin conforming transactions. One factoring company that isn’t yet using conforming transactions is Triumph Business Capital, the factoring arm of TriumphPay parent company Triumph Bancorp (NASDAQ: TBK). But Graft said integration into Triumph Business Capital’s capability to perform conforming transactions is expected in the first half of this year.
“What makes a conforming transaction unique is that the entire process of presentment, audit, payment and cash application can be completed in an automated environment,” Graft said during the earnings call. “You can think of this as the difference between pulling out a checkbook at the grocery store 30 years ago versus tapping a credit card today.”
Part of making the number of conforming transactions grow is bringing additional factoring companies into TriumphPay Audit. Three factoring companies were added to TriumphPay Audit’s list of users in the fourth quarter, Graft said, bringing the total number of companies to 69. The number of brokers in the TriumphPay system is now 554, which includes users of TriumphPay, TriumphPay Audit or both.
Another statistic that rose significantly is the number of carriers using TriumphPay. Graft said it added approximately 12,000 carriers during the quarter, up about 15.3% for the three months. At about 91,000, it’s up approximately 72% from the fourth quarter of last year.
TriumphPay has been in growth mode and has not been a strong contributor to the bottom line at Triumph Bancorp. And Graft said it won’t be until 2023 before TriumphPay shows “meaningful revenue growth” as the company winds down its promotional price structure. “The wiser thing to do is allow market constituents to use it and see its benefits and then build them after the fact,” he said.
“We’ve got two segments that are contributing and one segment that’s being built out,” Graft said, referring to factoring arm Triumph Business Capital and the community bank as the contributors and TriumphPay as the unit that is being developed. “And that will continue for all of this year.”
Graft discussed the hot freight market and said it may actually be slowing adoption of the integrated system that TriumphPay is bringing to market. A strong market enables some technology inefficiencies to be ignored during a busy time, but a turndown in performance “will … be a catalyst for participants to grab every efficiency they can, and we will be ready at that time to welcome them.”
But Graft expressed concern that the great freight party might have some downsides. Making an analogy to long-held oil producer fears that prices too high may be good for their balance sheets but not good for the economy, Graft said something similar.
“I don’t know if $2,400 invoices are good for the market, frankly, it’s kind of like $100 oil,” he said. “It makes people profitable in the short term, but I don’t know that it’s healthy for the entire ecosystem. We think something in the $2,000 range and above for a long period of time is really good for drivers. It’s obviously very good for our business. And it’s hopefully something that those who are shipping goods through interstate commerce can afford to pass along.”
In the earnings call, Graft and other Triumph executives reviewed several statistics on the company’s strong performance:
–TriumphPay processed about 4 million invoices in the quarter. The dollar figure in the payments processed at TriumphPay was about $5.2 billion, up 25% just from the third quarter and up 173% from a year earlier. For the quarter, the annual run rate was $21 billion.
–The Triumph Business Capital factoring arm purchased on average $60 million in daily invoices during the quarter. Total volume purchased was just over $4 billion, up 63.8% from a year earlier. The average invoice price was $2,291 and the company bought about 1.7 million invoices. That was up 8.7% sequentially from the third quarter and 40.4% from a year earlier.
–Despite the first quarter traditionally being slow, Graft said the average invoice size in the first days of January was $2,454. He said it is the highest average the company has ever recorded. “I would be very cautious about using that to extrapolate forward for what the full year looks like because I don’t think the full market is engaged,” Graft said. “I think a lot of trucks are parked, but I’ve never seen that in January.”