OnDeck Tumbles as Competition Forces Online Lender to Cut Rates

OnDeck Capital Inc. slid as much as 15 percent as stiffer competition pushed down the online lender’s interest rates on small-business loans.

The shares plummeted 13 percent to $17.46 at 10:45 a.m. in New York, after dropping to $17.05 earlier Tuesday. OnDeck’s effective interest rate on loans originated in the first quarter fell to 49 percent from 60 percent a year earlier, the New York-based company said in a statement Monday after the market closed.

OnDeck, which makes high-cost loans over the Internet, is one of many new companies that say they can use technology to extend credit more efficiently. It went public in December at an initial price of $20 a share.

“Competition is forcing all of these players to lower interest rates,” said Michael Tarkan, an analyst at Compass Point Research & Trading in Washington, who recommends investors sell the stock. “As new players continue to emerge, there will be more and more players chasing a smaller pool of loans.”

The company said its cost of funds declined to 5.1 percent in quarter from 9.3 percent in the same period a year earlier. Chief Financial Officer Howard Katzenberg said in the statement that loan rates dropped because the company was “passing along savings to our customers.”

OnDeck said that revenue almost doubled to $56.5 million in the quarter and loan originations increased 83 percent. Investors were expecting even more growth to justify OnDeck’s high valuation, Tarkan said.

One potential new competitor is Goldman Sachs Group Inc., which is hiring an executive from Discover Financial Services to help develop an online lending effort for individuals and small businesses.

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