[Updated] O2O bike-rental deposits in China may not be as secure as users think

You must have noticed the boom bike-rental companies in China as an increasing array of rainbow colored bikes mushrooming on streets across the country. Endless financing rounds from big names like Tencent, Didi, and Foxconn have been injected into one or another of the startups that involved in a heating field.

Despite the initial “wows” on the changes that bike sharing or, to use a more mundane term bike rental, have brought to our lives, the development of this sector has long been shadowed by pitfalls such bike vandalism and illegal parking.

While these issues are still unsolved, the recent news that investors of Kala, a bike-rental startup operating in Putian of Fujian Province, walking away with all users deposits has sparked public concerns about the safety of their capital. With this question in mind, let’s walk through some of the facts and problems with bike-rental deposits.

Bike rental deposit is no small deal now

In addition to a few firms like Qibei, which provides deposit-free services to Alipay users with high Sesame Credit scores, most of the companies require users to pay a deposit before using the service. The deposit varies: RMB 299 (US$ 43) for Mobike; RMB 298 for Ubike; RMB 199 for Xiaoming Bike; and RMB 99 for Ofo.

Bike rental companies promise that these deposits are totally refundable since the sum will be used solely as collateral; users will only be charged for each ride through a separate prepaid account.

As the user base grows, the deposit is creating huge cash flows for the companies. Reports from BigData Research (in Chinese) show that the weekly active users of Mobike and Ofo stood at 4.21 million and 4.36 million respectively in mid-January this year. For the two largest players, that’s a billion yuan-level cash pool taking form (1.26 billion RMB for Mobike and 431 million RMB for Ofo).

Prolonged reimbursement cycle

Paying a deposit for using bike rental services sound quite natural for us all. But have you ever given it a second thought? An investor walking away with is certainly rare, but there are other concerns.

Both Mobike and Ofo have stated many times that all the deposits are kept in separate accounts from their operating budget. They promised users could get their deposit back whenever they choose. However, it still takes several days before users can actually receive the reimbursement; this has been complained about by many (in Chinese), especially given that real-time transfers have become standard practice.

In response, inspections conducted by Shenzhen authority (in Chinese), Mobike cited third-party payment tools as the reason for delayed reimbursements. Currently, Mobike supports payment through Alipay and WeChat Payment.

Mobike users receive their deposits within 2-7 working days after applying for the refund, while it takes Ofo riders 1-3 working days to receive it. During this period of time, the users of both companies can not use their services.

In traditional rental services, be it real estate or bikes, deposits are usually refunded to the customers once they have handed back the rented property. But with bike-rental apps, the reimbursement application has to be submitted manually. Most people wouldn’t do so due to the hassles involved unless they plan to delete the app for good.

Absence of monitoring puts bike-rental deposit in a financial grey area

Despite the huge capital size, the monitoring for bike rental deposits is still a blind spot. As an emerging sector that has registered a large group of users, proper monitoring process should be involved early on to avoid what’s happened with P2P lending industry in China.

“The way for bike-rental platforms is to make the flow of deposits public and receive monitoring from the mass,” local media cited an industry analyst. “At the same time, bike-sharing is a part of urban transportation. Relevant authorities should strengthen the monitoring of startups, including the management of deposits.”

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In response to public concerns, both Mobike and Ofo have said they have sped up the process to enable real-time deposit reimbursement. TechNode has tested this and have received the refund shortly after submitting the application.

This post was updated at 18:52 on February 24 to clarify that the Mobike and Ofo have implemented real-time reimbursement.