Fostering Open Dialogue: Triumph Shares Industry Developments

The International Factoring Association is committed to fostering an open and transparent dialogue within the factoring community. As the industry continues to evolve, it’s natural for questions to arise about market developments, particularly when they involve significant players like Triumph.

We recently sat down with Aaron Graft, founder, Vice Chairman and Chief Executive Officer of Triumph Financial, Inc. and Tim Valdez, President of Triumph’s factoring division to address its strategic direction and role in the industry.

We asked about Triumph’s plans for expanding its factoring business, how Triumph manages data within its network, the impact of Triumph’s strategy on smaller factoring companies and Triumph’s responsibilities to the industry.

Triumph’s Intent to Grow

IFA: Triumph has recently stated its intention to grow its factoring business. Can you elaborate on what that means?

Triumph: Triumph Financial, Inc. operates in four segments: banking, payments, factoring and intelligence, the latter of which was only recently announced. Our factoring, payments and intelligence segments are almost exclusively focused on the transportation industry.

When we announced the acquisition of HubTran in April 2021, factors had many questions about our intentions with our payments business (TriumphPay). We aimed to improve  workflow and to use our technology to connect brokers and factors to efficiently share data. We believed this connection would reduce friction and fraud in the presentment, audit and payment of invoices and we have been successful in doing that. While it has eroded a portion of the technical advantages Triumph had built for its proprietary use, the benefits have outweighed the negatives.

TriumphPay has become a network that connects systems of record on both sides of the transaction (e.g., where the broker is the payor, and the factor is the payee after purchasing the A/R from a trucking client). As of the date of HubTran acquisition four years ago, there were 55 factors using the HubTran platform, which we call Audit. Today, there are 63 factors that use TriumphPay for Audit and 40 that have full network integrations.

At the time of the HubTran acquisition, we told the factoring market that we intended to hold our market share roughly flat. We estimated our market share at that time to be about 15%. For approximately four years, we have done precisely that. What we saw over that time, however, is that only one factor benefited from Triumph’s restraint at the expense of almost all others. There were a few notable exceptions, but for the most part, smaller factors ceded ground in the face of a scaled sales organization, aggressive pricing and bundled fuel discounts. Our conclusion? Triumph sitting on the sideline was not bringing more factors onto our payments network and it was empowering the strong to become stronger. 

Beyond this observation, another significant development has occurred in recent years: large brokers have actively moved to deepen their carrier relationships and monetize their payment processes. Brokers have felt frustration over the last decade as they watched their quickpay revenues decrease as factoring grew. In response, many brokers started factoring companies, most of which are IFA members.  Those brokers who have not directly entered the factoring space are now working on referral relationships and actively seeking participation from fintechs to build a factoring competitor. We were invited into one such discussion, which is now public. In our opinion, other brokers will either vocally or quietly continue to enter this space.

Given these market realities and of our investment in our operating platform, we created Factoring-as-a-Service (“FaaS”) to capture this opportunity. The intent of FaaS was to license our technology and operating platform to parties who wished to enter transportation factoring. They would be responsible for client facing activities, like sales, and we would assist in the back office, credit and balance sheet based on the needs of the customer. This target market includes freight brokers, but it's not limited to them. As we have said multiple times in public forums, we intend to offer FaaS to network factors who are frustrated with their legacy technology. Keep in mind, FaaS has only been in the market for 90 days or so. This is not a mature product; however, we see a roadmap where our technology is available to current IFA members as well as new entrants. It is in our best interest to do so to recognize the fruits of significant development costs.

IFA: What value is there to Triumph in licensing your technology to competitors?

Triumph: Beyond getting a return on our investment, we think the industry needs depth to be healthy. Not all transportation factors serve the same client segments. We originally designed the network to help factors achieve their specific goals while lowering their operating costs. A limiting factor to that aspiration has been the legacy factor management systems (“FMS”) most factors use. These systems cannot ingest our payments data in a way that gives factors the most value from the network. Even with these limitations, we can give factors visibility into many things. Unlocking real value, however, requires factors to change their core platform or invest in bolt-on technology to enhance the FMS, which is subject to change if the provider does an update. FaaS is a potential solution for factoring companies that cannot afford to build their own FMS. 

In summary, we are shifting our model to grow our factoring business. We are growing it organically, through our freight broker factoring team, and our FaaS partners, of which there is currently one. We are also offering our technology to the industry so that other factors can compete more effectively and better serve their clients.

Triumph’s Data Governance

IFA: Can you clarify your approach to how Triumph manages data received through its various platforms?

Triumph: As a publicly traded bank, Triumph is subject to stringent regulatory oversight. We undergo more examinations than most IFA members can imagine and treat every customer’s data in compliance with our contractual, legal, and regulatory obligations. To do otherwise would invite major problems for us.

Here is something factors already know – the brokers know who your customers are. They know this based on when they receive your Notice of Assignment, whether they use us or not. TriumphPay also knows who your customers are, whether you are a network factor or not. That data is not shared with our factoring segment or any other customer.  We do not share data with our FaaS customers about anything other than their own clients.

IFA: Do you believe that FaaS-enabled brokers will use their own enterprise sales data to create deeper relationships with their carrier capacity?

Triumph: Of course they will. That should surprise no one. Everyone is going to play to their strengths to find leads and win business.

The bottom line is that Triumph has not and will not use a factors’ data gathered in our payments business to compete with them for factoring clients. The second thing to know is that any data we share with a FaaS customer is the same data we share with a network factor – they are treated equally by the payments network. We treat network factors and FaaS customers equally with respect to the network.

To the extent we eventually will use aggregated factoring data for our intelligence segment (which has just been announced), our product roadmap is to make anonymized market-level data available to our network factors so they can use it to improve their customers’ experience and mitigate fraud. In a perfect world, many IFA members will use us for FaaS, and they will use our intelligence products to help them win, maintain customers and reduce expenses. That is the best outcome for Triumph.

Triumph’s Impact on Small Factors

IFA: Some small factors are concerned about how Triumph’s strategy could affect their businesses. What is your perspective?

Triumph: In the time we have been in the industry, we have watched the gap widen between big and small. It’s the flywheel effect of scale. We don’t love it, but whatever our feelings are, none of us can hold back progress. Technology today is very different from what it was just a few years ago. Smaller factors must upgrade their technology stack if they want to stay relevant. That is part of the reason we intend to offer FaaS as a solution to the industry – so that smaller factors can stay in the game. 

The second relevant thing on this topic is to understand the nature of our factoring revenue. Approximately 80% of Triumph’s factoring revenue comes from 20% of our clients. These clients, as you would expect, are larger carriers. Small factors generally do not compete in this space. As we see more large trucking companies leaving ABL relationships with banks due to cyclical pressures, we intend to compete for that business.

The third relevant thing on this topic is that Triumph is actively involved in freight broker factoring, which is generally not competitive with smaller factors.  This is a growth area for us given our relationships with the brokerage industry.  Very few transportation factoring companies have the ability to do freight broker factoring well due to the limitations of their legacy technology stack.  We do not view this as competitive to the majority of the industry. 

Triumph’s Responsibility to the Factoring Industry

IFA: What do you see as Triumph’s responsibility to the factoring industry?

Triumph: We believe our responsibility is to treat you as we would want to be treated if roles were reversed. Accordingly, we have a responsibility to act with transparency, decency and goodwill. We believe in decency - we do not disparage other factors, whether they do business with us or not. That is not how we have done business or how we will do business. And we have goodwill for the industry. We are advocates for the industry. Compare our involvement on sharing business insights, moderating panels, teaching classes and supporting our industry lobbying efforts to any other factor, large or small. In any organization, 10% of the members do 90% of the work. We believe we are firmly among that 10%. We are happy to contribute. It’s a big space and everyone can carve out a niche. We’d like to think we are giving people the tools to help them succeed in that endeavor.

IFA: We appreciate the insights you've shared about Triumph's approach and strategic direction. If factors have additional questions or want to discuss any aspects in more detail, how can they reach out?

Triumph: We welcome open dialogue and are happy to provide further clarification. If you have any additional questions or need more information, please don’t hesitate to reach out. We’re always available to continue the conversation and support the factoring community.

About the Authors:

Aaron P. Graft

Founder, Vice Chairman and Chief Executive Officer

Mr. Graft is the Founder, Vice Chairman, and Chief Executive Officer of Triumph Financial, Inc. (Nasdaq: TFIN). Additionally, he serves as the Vice Chairman, Chief Executive Officer, and Public Information Officer of TBK Bank, SSB, is the Chairman of Triumph Financial Services LLC, and is the Vice Chairman of Triumph Insurance Group, Inc. Mr. Graft also serves as the Chairman of The Bank of the West of Thomas, Oklahoma.

Before establishing Triumph Financial, Mr. Graft served as the Founder and President of Triumph Land and Capital Management, LLC, where he oversaw several multi-family and commercial real estate projects in receivership and led the acquisition of multiple pools of distressed debt secured by multi-family projects. Before Triumph, Mr. Graft worked for Fulbright & Jaworski, LLP (now Norton Rose Fulbright LLP), focusing on distressed loan workouts.

Mr. Graft received a Bachelor of Arts, Cum Laude, and a Juris Doctorate, Cum Laude, from Baylor University. He previously served on the Baylor University Hankamer School of Business Advisory Board. In 2017, Mr. Graft received the EY Entrepreneur of The Year® Award in the Business & Financial Services category in the Southwest Region.

Tim Valdez

President, Triumph – Factoring Division

Tim Valdez is the President of the Triumph Factoring Division. He is responsible for providing overall leadership in setting and executing Triumph’s strategic plan. With over 25 years of experience across multiple factoring companies, Mr. Valdez's deep industry knowledge influences Triumph’s expansion to serve the factoring market. Mr. Valdez previously served as Chief Operating Officer and Factor Leader for TriumphPay.

Before he joined the Triumph Financial enterprise, he served as Vice President of WEX Fleet One Factoring, where he managed the daily operations of the recourse and non-recourse transportation factoring portfolio, including the supervision of sales, operations, cash application, collections, underwriting, and credit. He joined WEX Fleet One Factoring in 2019 when the company acquired Pavestone Capital, a recourse factoring company that Mr. Valdez co-founded to serve small and middle-market transportation and commercial businesses. Before founding Pavestone Capital in 2012, Mr. Valdez served as Chief Lending Officer for Transportation Alliance Bank. Mr. Valdez served on the Advisory Board of the International Factoring Association from 2010 to 2012.