OnDeck Capital, a digital lending pioneer that has been dogged by persistent losses, reported progress Monday in its quest to achieve profitability by the end of the year.

The New York firm recorded a $2.6 million loss in the second quarter, down from $18.7 million of red ink during the same period last year, and said it is on track to meet its timeline for profitability.

Noah Breslow, chairman and CEO of OnDeck Capital.
New discipline
OnDeck has reduced loan sizes and term lengths in some segments and tightened approval rates “to better manage risk,” CEO Noah Breslow says.

The results heartened Wall Street. Shares in OnDeck were up 18% in trading Monday afternoon, though the $4.97 share price remained far below the $20 price at the company’s initial public offering in December 2014.

Since going public, OnDeck has reported losses of more than $95 million, and it has come under pressure from hedge fund investors to start making money. Three months ago, OnDeck announced plans to slash its staff and become more selective about the borrowers it approves.

As of June 30, OnDeck reported having 492 employees, down approximately 30% from the start of the year. Its operating expenses fell by 6% from the second quarter of 2016 to $44.6 million.

Since its founding a decade ago, OnDeck has originated more than $7 billion in small-business loans. Companies that are unable to qualify for bank loans often turn to online lenders like OnDeck, which tout their speed and convenience but also charge higher interest rates.

During the second quarter, OnDeck’s loan originations fell by 21% to $464.4 million as the company raised the bar for applicants.

“In addition to reducing approval rates, we used product structure to better manage risk by reducing average loan sizes and shortening term length in certain segments of our portfolio,” CEO Noah Breslow said Monday during a call with analysts.

Despite the tighter credit standards, OnDeck’s net chargeoff rate rose from 11% in the second quarter of last year to 18.5% in this year's second quarter. The company attributed the jump to the combination of a shrinking loan portfolio and the relatively weak credit performance of older loans.

OnDeck also announced Monday that it has added up to four years to its contract with JPMorgan Chase, under which the smaller firm provides the technology behind the megabank’s digital platform for small-business loans.

The product, known as Chase Business Quick Capital, launched on an invitation-only basis in early 2016. JPMorgan plans to expand customer access next year.

“We believe it’s just a matter of time before other big banks begin adopting Chase’s approach,” Breslow said, “and we are committed to providing them with the best solution.”

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Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.