This year continues to see major fintech acquisitions. Enova International announced yesterday it will acquire the small business lending fintech OnDeck for “approximately $90 million” in a deal the companies expect to close this year.

In a year that has seen major deals like Visa acquiring Plaid for $5.3 billion, Intuit acquiring Credit Karma for $7.1 billion and SoFi acquiring Galileo for $1.2 billion, the relatively low $90 million price tag for OnDeck stands out. According to David O’Connell, senior analyst at Aite Group, online lenders’ focus on reducing friction, rather than portfolio management, was bound to backfire during an economic recession.

“When the economy has been hit by a comet, private equity doesn’t show up with $50 million to deploy as small business loans,” O’Connell said. “It would be an understatement to say this is a canary in the coal mine.”

O’Connell added that Enova is most likely buying OnDeck for its technology. OnDeck reported during its first quarter earnings call in April that 45% of its loans weren’t current. If a major fintech lender like OnDeck faced that much trouble early on during the pandemic, according to O’Connell, other fintech lenders like CAN Capital and Kabbage could face trouble as well.

Enova’s online lending business focuses on nonprime consumers and small businesses. Its brands include CashNetUSA, which offers payday loans and lines of credit, and Headway Capital, which offers small business lines of credit. The Chicago-based company said it has reached 7 million customers and provided more than $20 billion in financing. Last year, the Consumer Financial Protection Bureau fined Enova $3.2 million for debiting customers’ accounts without permission and not honoring promised loan extensions. 

New York-based OnDeck has faced pressure from a crowded market of fintech SMB lenders, and the COVID-19 pandemic drastically hurt the publicly traded company’s share price. OnDeck’s closing stock price Feb. 21 was $4.14 per share and had dropped to $0.66 per share by March 18. It closed at $1.35 today. OnDeck announced gross revenue of $80.5 million for the second quarter, down from $110.2 million in the second quarter of 2019.

“I am proud of the business we have built and the more than $13 billion of financing we have provided to underserved small businesses since our founding in 2006,” said OnDeck CEO Noah Breslow in a statement. “Following an extensive review of our strategic options, we believe this is the right path forward for our customers, employees and shareholders.”

See also: OnDeck, BlueVine are latest fintechs to provide PPP loans 

Before the pandemic, OnDeck had plans to gain a banking license. Breslow previously told Bank Innovation the company wanted to target “mom and pop, main street small businesses.” In April, the company pivoted to Paycheck Protection Program loans to reach struggling small businesses affected by the pandemic. 

According to O’Connell, online lenders that rely on private equity to fund loans for businesses that banks avoid are bound to be sensitive to economic downturns. “It’s hard to see how the online lender business model survives going forward,” he said.

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