Batters Up - OnDeck's Got A Brand New Pitching Game

Jan. 21, 2016 5:12 PM ETOn Deck Capital, Inc. (ONDK)JPM, LC, AVNAT
Timothy Li profile picture
Timothy Li
38 Followers

Summary

  • New Acquisition Strategy (ISOs vs. Direct).
  • Balance Sheet vs. Marketplace.
  • An alliance with JPMorgan Chase.

It's been a year since OnDeck (NYSE:NYSE:ONDK) and LendingClub's (NYSE:LC) historic IPO. Since then, both firms lost over 70% of their value. More than 30% of their value vanished in the first few weeks of 2016.

Despite triple digit Year-over-year growth and the return to profitability in Q3'15. Both companies are still not getting any love.

In "Love The Company, Hate LendingClub Stock", I laid out 3 strategic pitfalls of LC. Their compliance strategy has an existential single point of failure. A string of nimbler competitors such as Avant, LendUp and Zest Finance are champing at the bit. LC's product line is becoming stale.

But let's take a look at OnDeck's latest strategic shift and what it means to investors

New Acquisition Strategy - Independent Sales Organization (ISO) vs. Direct to Consumer

OnDeck put in place an ISO vetting process last year that turned away many of their lead providers. OnDeck wanted a gradual tradition. But the ISO network got spooked and took their relationship elsewhere. The pressing issue is how they will replace the broker network with internal efforts?

OnDeck made a sincere effort on TV, Satellite Radio and Direct Mail in 2015. These advertising channels are capital intensive. It may take a years for the OnDeck to optimize these acquisition channels. Either way, nothing replaces personal relationship that ISOs have with their clients.

Small business owner might need someone they trust to guide them through the process. Most lenders need bank statements and tax records as part of their underwriting process. Small business owners may already have these financial with their ISOs. It would be a hard sell to uploading to a faceless website.

For now, OnDeck managed to cut the middle man, but time will tell. They may start getting a different type of clientele with out the ISOs.

This article was written by

Timothy Li profile picture
38 Followers
Timothy has over 15 years of Banking and Financial industry experience and has worked at JPMorgan Chase, LoanDepot, RealtyMogul. He also serves on multiple advisory boards include Rocketloans. Tim also recently joined the University of Southern California as a part-time faculty at the University of Southern California’s School of Engineering.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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