Brad Voss: Sure. Hal, you did notice that our broker deposit levels have fluctuated quite a bit over time, and I think that will continue to happen. We view broker deposits as part of a portfolio of non-core funding options that we use, and we really use the one that is the most economically advantageous at any time. If you look at our overall wholesale funding portfolio, the cost of that over the last couple of quarters is actually just a touch below where we can sell money overnight to the Fed, and we actively manage those costs and that composition, so. As you see that composition change among federal home loan bank advances and brokered funding, it changes because the economics associated with those are moving back and forth.
Hal Goetsch: Thank you.
Operator: Our next question comes from Frank Schiraldi with Piper Sandler.
Frank Schiraldi: Good morning. Just wanted to go back to something Melissa said about pickup in volume. Just want to make sure I heard correctly on the, I think you said $5 billion to $10 billion in volume pickup, and was that over 12 months? And did you say that was all network volume? Just trying to clarify those numbers.
Melissa Forman: Yeah, Frank, thank you for clarifying that question. So the $5 billion to $10 billion would be based on an annualized rate. So that’s the contracts and the implementations, integrations we have in our queue. Some may roll over into first quarter of ’25, as those implementations start taking place, but that is the total annualized volume that you’d see. So you would not expect to pick that up total volume in 2024. Does that make sense?
Frank Schiraldi: Sure. So that’s — okay, so that’s annualized volume, but is that all network, or is that across the — just the total?
Melissa Forman: The majority, yeah, the majority of that would be network volume. There are ways in which we can add volume to the network, that is all sides of the transaction, right from the pre-purchase all the way down to the cash application. So some of that volume will live on one side of the network transaction, some will be on both.
Frank Schiraldi: Okay. And then just to follow-up to that, when we’re thinking about 2025 in terms of revenues, I know — correct me if I’m wrong, but I think that the factor — factoring fee or factor fees, the fees that factors are paying has been pretty like sort of stable and I think that’s because you haven’t really, for the most part, been charging network fees to these factors. And so do you think starting — I think the idea is to start perhaps in 4Q ’24, depending on where your penetration is on network transactions, it seems like the penetration is going to be pretty strong. So is that still a good timeline to think about or does it depend on how healthy the freight economy is at that point? And just remind us, if you could, the potential pickup there sort of right off the bat.
Melissa Forman: Yeah, that’s a great question. And so, if you remember when we priced out the network, we had about 150,000, 167,000 transactions quarterly when that pricing was set. That represented about 3% of our total payment volume at the time. When you look at where we’ve landed this quarter and what we’ve achieved this quarter, we are up to over 600,000 in network transactions, representing, as Aaron mentioned, $1 billion in those payments and 16% of our payment volume, right? So substantial growth in that timeframe. The pricing that was set for our factoring clients was set based on that Q4 of ’22 volume, right? With the market where it is, we made a decision as a business to give grace to those payment term increases in Q4 of last year, and we are just — we’re going to keep watching the market and keep making sure — keep adding the value as we’re doing, giving factors the ability to leverage that data and make the changes that they need, especially in the market where it is right now, where they’re feeling so compressed, where there’s margin compression.
But we’ll continue to monitor it and when the timing is right, we’ll be able to see those — that pricing increase and it will include all of the network volume that we will have at that time. Aaron would add something.
Aaron Graft: No, hey, I think that is just such a great answer. I just want you to hear what — I want to reiterate something Melissa says, and I see her with her team and out in the market. When we get on these earnings calls, we talk about, well, how can you monetize it, right? What is the dollar transaction value? And that’s an appropriate question. It’s something that we owe to investors. I want you to know how we think about it as we run our business. We start with, how much value is this to you, our factoring customer. Because if we put the monetization ahead of the value creation, that’s not a way to build a long-term partnership. And the greatest partnerships, the greatest networks are more concerned about adding more value to their constituents than how quickly they take it out.
And so I love the fact that Melissa has a long-term view and that we as an enterprise have a long-term view. And what’s going to drive this is, if you end up making 60%, 70% of a factor’s payments are available to them as network transactions. That changes their staffing model, it changes their operational processes, it changes how they do cash application. It reduces several dollars, if not $10 in friction per invoice for which it is entirely appropriate for us to be paid. But right now we are talking about the value creation, which is primarily driven by creating density in the network, pushing more transactions. Our technology continues to get better. We still hold to those long-term economics we told you, that we think are conforming transaction or a network transaction, generates somewhere around $5 in total revenue and we think it eliminates $20 of friction between the payor and the payee, generally the broker and the factor.
But that value prop goes up as density goes up. And that’s why most networks never make it, is because they get ahead of themselves on trying to monetize things instead of focusing on density. So, I don’t mean to be long-winded in this, but I want our investors to understand I am way more concerned about the density of the network and the value we are delivering to our constituents than exactly what we price it out in 2025, I think it goes up. I don’t know if we get to our long-term ultimate goals, then it will depend upon can I look our customers in the face, can Melissa look our customers in the face and say, we delivered way more value than we’re charging? And if that’s true, we will charge it.
