The trucking industry has continued growing as the demand for e-commerce has shot up in recent years, becoming even more mainstream. The trucking industry now accounts for $800 billion of gross domestic product. However, the industry is quite fragmented among shippers, carriers, individual truckers, freight brokers, factoring companies, vendors, and more.
And up until recently, the way payments have flowed between these players has been anything but efficient. Now, one company thinks it has created what will eventually become the ubiquitous payments network for the sector. Let's take a look at this potential disruptor.
An unlikely candidate
So, who's behind the payments network that may take over the trucking industry? It's a relatively small Texas-based bank with $9.1 billion in assets called Triumph Bancorp (TFIN -0.08%). Triumph was already heavily involved in the trucking industry as a participant in factoring, meaning the bank purchases truckers' invoices up front and at a discount, and then collects a nice spread when the invoice is paid in full later.
In speaking with its customers, Triumph saw how fragmented the industry was and that there was also an opportunity to connect all the players in the ecosystem. This led to the incubation and eventual build-out of TriumphPay.
Not only does TriumphPay facilitate the flow of money between the various parties in the industry, but it eliminates a lot of manual tasks and provides presentment and audit services for the various parties as well. TriumphPay also connects factoring companies that may be looking for volume with brokers.
In its most innovative move yet, TriumphPay recently introduced conforming payments, which management describes as an invoice sent through the network between two parties. However, these invoices are engineered through application programming interfaces, like a credit card transaction, and are mostly automated to make the process less expensive, more efficient, and more secure.
Derek Stanley, president of the factoring company Engaged Financial, which participated in some of Triumph's first conforming transactions, called the achievement "just as exciting and impactful as the first time we landed on the moon."
How is TriumphPay progressing?
TriumphPay now has 566 brokers, 48 shippers, and 69 factoring companies on the network. Triumph is continuing to bring on what it calls tier 1 clients, which are brokers or shippers that transport $500 million of freight volume or more in any given year.
The top 30 tier 1 freight brokers deal with 40% of all brokered freight, while the top 20 tier 1 factoring companies deal with 75% of all factoring. So, obviously, the ability to bring any of these companies into the network can move the needle significantly. Triumph currently has several tier 1 freight companies in its network and using its services, and it continues to look for more.
In the second quarter of 2022, TriumphPay had more than $6 billion of payment volume flow through the network, which equates to an annual pace of more than $24 billion. From the more than $6 billion of volume in Q2, the company generated about $8 million of revenue in the quarter.
Furthermore, conforming payment volume has started to pick up as well. When TriumphPay launched the practice in Q1, it had close to $130 million of conforming payment transactions. In Q2, that number jumped to more than $253 million.
Key performance indicators to watch
Triumph has set a goal of achieving a $75 billion run rate on TriumphPay by the end of 2024, a goal that would also generate $100 million of annual revenue. In the second quarter of the year, TriumphPay, which is one segment of Triumph Bancorp, reported a pretax loss of more than $3.1 million, but that's way down from previous quarters. Once TriumphPay is at a run rate of $75 billion of volume, Chief Executive Officer Aaron Graft said the business should be generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA).
I'll be watching how volume continues to ramp up and looking for the addition of tier 1 clients, which can add a lot of volume to the network. Ultimately, I'm quite bullish on the stock, given what Triumph has built and the momentum it is seeing.