On a conference call last year with analysts, Aaron Graft, the CEO of Triumph Financial, gave an estimate of how many competitors in the factoring spaceTriumph faces on a daily basis: about 400.
Given that discount rates and other financial metrics in factoring will never diverge widely among that wide range of competitors, the question is how to expand the business.
Triumph Financial (NASDAQ: TFIN) over the past one to two years has taken a step to leverage its expertise and offer out a “white label” factoring service to brokers and others who want to serve their clients: Factoring as a Service (FaaS).
Graft has talked about FaaS in recent earnings calls without a large amount of detail. Analysts on those forums have generally just poked around the edges in their questions about its status.
But Kimberly Fisk, the president of factoring at Triumph, in an interview with FreightWaves described FaaS at Triumph as “just what it sounds like. It’s a service that we provide to transportation-focused organizations giving them the ability to have an additional offering.”
Fisk added that Triumph’s FaaS is “a factoring entity, but it’s backed by our expertise in our systems.”
Triumph Financial already has identified C.H. Robinson (NASDAQ: CHRW) and RXO (NYSE: RXO) as customers of the service.
Fisk said Triumph’s FaaS offering would be employed by a transportation company, like a broker, to package factoring as a service that the broker or other entity can provide to the carriers they hire.
It has a market opportunity because those transportation companies might not have–in all likelihood, they don’t have–the ability to actually run a factoring operation.
“These brokers may be interested in starting a factoring division, given their sales arm and their carrier pipeline,” Fisk said. “But they don’t have the systems or expertise to run a factoring business.”
That’s where the Triumph Financial FaaS comes in. The company takes on the back office operations of, for example, a broker’s factoring product. Triumph can also provide financing in the transactions.
Triumph’s FaaS is considered a “white label” product because it is being provided to a customer by the broker or other transportation company, with Triumph in the background.
A white label product was defined by job search giant Indeed.com as “the process of selling a generic product through multiple retailers and with various branding styles. Essentially, a white label is a ‘blank label,’ so you can’t change the product or what’s inside the packaging, but you can customize how the product is labeled and packaged.”
If a broker had not offered factoring previously, and now it can because it is using Triumph Financial’s FaaS offering., Fisk said “these brokers now have the ability to say, hello, my carrier. I have a load for you. And by the way, I can be your lending partner. I can be your financial partner in this as well.”
Triumph is not involved in securing customers for the service, Fisk said. That is the responsibility of the customer that is utilizing its Triumph Financial FaaS offering, she said.
Graft echoed that theme in Triumph’s fourth quarter conference call. “This is not our business in that sense of controlling the marketing levers and the growth engines,” Graft said.
Companies that have started to offer factoring with Triumph’s FaaS product running in the background, Graft added, “want to bind themselves closer with their carriers because they want carrier repeat business to thrive,” he said.
Revenue from FaaS activities is not broken out in the company’s earnings. Total factoring revenue in the fourth quarter ended December 31 was $41.9 million. It had operating income of $13.7 million. FaaS is believed to be a tiny part of that.
“It is growing slowly and it is gaining traction,” Fisk said. “We are seeing growth quarter over quarter, and we’re still seeing a lot of interest and approaches to Triumph for the product.”
In his quarterly letter to investors, Graft’s update on the FaaS offering was similar. “Our Factoring-as-a Service (FaaS) initiatives are gaining traction, with 4Q purchase volume growth of 136%,” Graft wrote. “That is not a typo, but I would remind investors that this percentage growth is off a small base. Multiple parties have approached us to explore FaaS for their operations.”
Graft added that he expects to discuss FaaS further in future quarterly letters to investors.
Factoring is not an easy product for a company that is not in the business already to begin offering, Fisk conceded. “There is a robust process around teaching how to sell factoring,” she said.
The percentage of the financing put up by Triumph Financial also can vary, Fisk said. Triumph might do 100% of the financing, “or there could be participation where we do half and half,” she said. Different percentages might be reached as well. It also could be zero,
Fisk said the ground was laid for the creation of the FaaS service because Triumph already had the platform to expand beyond its own factoring activities. “We’ve invested so much in our technology and been focused on operational efficiencies for a few years now, and we have the ability to expand our services to assist others that are interested in the program,” she said.
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