Why OnDeck is Underperforming its Peers

Small business lending company OnDeck was down nearly 23% on the year when the market closed on Friday. One of their closest rivals, Square, a company that makes business loans in addition to offering payment processing services, was up almost 64% this year so far. The disparity can be partially attributed to the market’s changing perception of OnDeck, originally viewed as a disruptive technology company, to what they’re seen as now, a niche commercial lender. Their tech multiple is gone, putting their market capitalization near book value.

Square is faring differently since they have virtually no borrower acquisition costs (whereas OnDeck has high acquisition costs) and a strong revenue stream outside of loans. Square’s strategy is to turn its existing payment processing customers into borrowers.

Meanwhile, Lending Club, an online lender that makes both consumer loans and business loans, is up 6.48% on the year. Despite being down 63% from their IPO price, Lending Club is different in that they generate fee income off of originated loans rather than book loans on balance sheet like OnDeck.

What ties them all together is that OnDeck, Square and Lending Club all rely on chartered banks to make the loans they advertise, a model that is coming under scrutiny by states such as New York. OnDeck and Square both depend on Celtic Bank, a Utah-chartered industrial bank.

Among its peers, OnDeck arguably has the riskiest makeup. They’re concentrated in only one type of lending, they have high acquisition costs, and they retain direct exposure to the loans they generate. Combine that with a lack of profits, lack of growth, and future regulatory challenges ahead, and it’s easy to understand why they’re so significantly underperforming the pack.

Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.