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The small-business lender's shift 18 months ago to a marketplace player that sells loans to investors paid off handsomely in the second quarter.
August 3 -
Companies like OnDeck and Lending Club are under pressure to keep finding new borrowers, but there are signs that customer acquisition costs are rising amid heavier competition.
May 6 -
Marlin Business Bank has launched a new site to compete with alternative lenders such as OnDeck and Kabbage, which specialize in providing quick and convenient access to small-business credit.
July 31
OnDeck Capital's efforts to attract small-business borrowers are faring worse than previously anticipated.
Executives late Monday detailed problems with their efforts to acquire new customers, which rely on loan brokers, online and direct-mail marketing as well as other methods.
Shares in the New York company tumbled afterward. Its stock was trading at $10.53 early Tuesday afternoon, down 21% from Monday's closing price. The share price at the firm's initial public offering in December was $20.
During its quarterly
He also said that increased competition in small-business lending has made some of the firm's marketing efforts less effective.
"Given where we are in the economic cycle, it probably comes as no surprise that small-business lending represents an attractive opportunity for banks, as well as for new market entrants," Breslow told analysts. "There are no two or three competitors dominating this trend, but we know the sheer number of marketing solicitations targeted to small businesses has grown meaningfully over the last six months, which impacts our response rates."
[Coming this November:
During the company's previous earnings call in May, Breslow acknowledged the entrance of new competitors but was more dismissive of the threat they posed to OnDeck.
On Monday, Breslow said that OnDeck has taken steps to address certain challenges it has encountered. At the same time, he raised the possibility that competition for small-business loans will wane in the coming months.
"From the traditional lending standpoint, if you're a big traditional bank, you do have a bit of a cyclical attitude toward the segment. So it has been sort of a binge-and-purge dynamic," he said. "I think for the new entrants, you know, we also have a question a little bit on sustainability, although we'll have to see. I think some will figure out a sustainable mode here, and some may not."
Breslow also flagged problems with OnDeck's efforts to acquire borrowers through loan brokers.
The company had previously disclosed that it was terminating its relationship with some brokers, but Breslow said Monday that the fallout from that decision was more pronounced than had been expected. OnDeck's loan origination volume through brokers fell by 11% from the first quarter, though it was up 12% from the second quarter of last year.
The high cost of customer acquisition
Michael Tarkan, an analyst at Compass Point Research & Trading, said that he expects the flood of money into the marketplace lending sector to keep fueling the competition for borrowers. "I see that continuing, because there is just so much capital in the space," he said.