Building the Modern Payments Network for Truckers with Aaron Graft, Founder & CEO of Triumph Financial (NASDAQ: TFIN)
Mar 7, 2023
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Aaron Graft, Founder & CEO of Triumph Financial, discusses building a modern payments network for truckers, the profitable nature of Triumph's factoring business, and the benefits of having a bank structure. He also emphasizes the importance of low cost of funds and the need for a streamlined payment process in the trucking industry. Additionally, the discussion touches on shrinking share count, efficient capital stewardship, and the significance of the trucking industry in the economy.
Triumph Financial transformed into a transportation-focused industry leader through the acquisition of a factoring business that buys invoices from truckers, generating high margins.
Triumph's factoring business has experienced remarkable growth by providing working capital to small trucking businesses, with a turnover cycle of 36 days and a focus on timely payments and exceptional customer service.
Triumpay, developed by Triumph Financial, aims to revolutionize the trucking industry's payment processes by digitizing transactions, reducing paperwork, and becoming the industry standard for trucking payments.
Deep dives
Triumph Financial's Acquisition of Advanced Business Capital
In this podcast episode, Triumph Financial founder Aaron Grapt discusses the pivotal moment in the company's history, which was the acquisition of the factoring business called Advanced Business Capital. At the time of the acquisition, Triumph was a rehabilitation project, focused on cleaning up bad assets. The acquisition of the factoring business, which buys invoices from truckers, transformed Triumph into a transportation-focused industry leader. The factoring business generates high margins, and Triumph has turned its focus to building a payments company, Triumph Pay, that caters to the trucking industry. The future of Triumph Pay looks promising, as it offers solutions to truckers' pain points like working capital, back-office support, and fraud mitigation. The competitive market of transportation factoring poses challenges, but Triumph's strong reputation, trustworthiness, and value-added services contribute to its stickiness with trucking customers.
The Growth and Potential of Triumph's Factoring Business
Triumph Financial's factoring business has experienced remarkable growth, from buying $40 million in invoices per month to over a billion dollars per month. This growth is fueled by the significant market of small trucking businesses that require working capital. Triumph's factoring services allow truckers to receive immediate payment for their invoices at a low discount rate, ensuring cash flow to cover expenses like fuel. The factoring business operates on a turnover cycle of 36 days, requiring continuous addition of new clients to sustain growth. Triumph has implemented targeted marketing strategies, including personalized assistance for small truckers and aggregated purchasing power for cost savings. The stickiness of trucking customers is primarily driven by timely payments, exceptional customer service, and the value-added benefits provided by Triumph, mitigating credit risks and offering fuel programs. The competitive transportation factoring market poses challenges, but Triumph's offering stands out due to its reputation, efficiency, and ability to address common pain points in the industry.
Triumpay: Revolutionizing Payments in the Trucking Industry
Triumpay, the payments company developed by Triumph Financial, aims to transform the accounts payable process in the trucking industry. Powered by innovative technology, Triumpay improves communication, reduces friction, and mitigates fraud risks for truckers, freight brokers, and shippers. By digitizing the payment system through structured data and real-time transactions, Triumpay eases the burdens of paperwork, reconciliations, and financial management for truckers. The revolutionary payment network has the potential to become the industry standard for trucking payments, comparable to established payment networks like Visa or MasterCard. The focus is on acquiring the involvement of large freight brokers, as they have the most significant influence in the market. Triumph's successful integration of the factoring business and reputation for trustworthiness serve as strong foundations for building relationships and fostering adoption within the trucking industry.
Improving Funding Structure in Rural Markets
One way the bank improved its funding structure was by targeting rural markets with an excess of deposits versus loans. These markets often have a conservative borrowing culture and struggle to find loans to deploy their liquidity. By acquiring a factoring company, the bank was able to generate assets, but lacked a low cost of funds. To address this, the bank focused on building relationships and understanding the needs of depositors and bank customers in rural markets. This approach helped the bank maintain a strong funding structure and a cost of funds advantage.
Transforming Payments in the Trucking Industry
The bank recognized the inefficiencies in the trucking industry's payment processes and saw an opportunity to create a transformative solution. They developed TriumphPay, a payments network that leverages structured data to streamline payments between truckers, freight brokers, and shippers. This network eliminates the need for unstructured data, such as physical bills of lading, and enables instant, secure, and accurate transactions. The bank believes that TriumphPay has the potential to revolutionize the industry, reduce friction and fraud, and create significant value. They emphasize their commitment to building this ecosystem and exploring growth opportunities within the payments space.
Our guest on the show this week was Aaron Graft, the Founder, Vice Chairman and CEO of Triumph Financial. Just as the impacts of the Great Financial Crisis were waning, Aaron led a team of people who took over a failed bank to create Triumph. Aaron has been CEO since the beginning and has been instrumental in transforming the bank into a transportation-focused industry leader. Specifically, Aaron has helped turn what was a small factoring business into a high margin one that buys $1 billion in invoices from truckers every month. In recent years, Aaron has turned his focus to building a payments company that caters to all of the constituents in the trucking industry. In this fascinating discussion, we covered:
The benefits of having a bank structure despite Triumph not being a typical community bank;
How the company has built the factoring business over time and why it is so profitable;
The vision for Triumph Pay and the path to building it into something much larger; and
Why the company has been so aggressive in repurchasing its own shares
For full disclosure, Cove Street is NOT a Triumph Financial shareholder.
And without any further ado, here is my conversation with Triumph’s Founder, Vice Chairman and CEO, Aaron Graft. For more information about Triumph Financial, please visit: https://www.tfin.com/
This episode of Compounders: The Anatomy of a Multibagger is sponsored by Daloopa. Daloopa was founded by a former hedge fund analyst to bring simplicity to the investment process. Daloopa offers an AI-driven, single source for all company reported data, and allows for investment teams to make the most informed decisions in the shortest amount of time. For more information, please visit: https://daloopa.com/
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All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
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