Are bikeshare startups a reliable bank for deposits?

As hot as bike-sharing is becoming, it has also fallen into the center of a media storm this week.

On Tuesday, China Central Television openly criticized the depositing system of the country’s leading bike-sharing apps, Mobike and ofo, questioning whether the millions of RMB deposited by the app users might be at stake.

Mobike saw its monthly active users (MAUs) at around 5 million in November last year, according to Chinese mobile app analytics firm App Annie. The total deposits of these MAUs are thought to reach as much as RMB 1.5 billion (USD 217 million), as the company set the deposit rate at RMB 299 for each user.

The company claimed so far that it has bank accounts exclusive for deposits, to ensure that deposits are secure and the money will not be used for other purposes. It promised that it would refund a deposit as soon the user required it, and the money will immediately be returned to the user via third-party payment channels.

Ofo, Mobike’s rival, claimed it had similar practices and said that the company has not used the deposits for any other purposes, Chinese news portal Sina reported on Wednesday.

A Mobike user. Photo from Mobike.

Firms in the sector have had access to a gigantic sum of money, as they mainly require deposits from RMB 99 to RMB 199. Deposits have become a major source of cash flow for the bike sharing sector. However, as a new form of business, the bike sharing industry is still unregulated.

In the use of deposits, some bike sharing players say they save deposits in the bank and take the saving interests, while others said they save 30% of all deposits for potential risk and invest the rest into business expansion efforts like producing more bikes, according to Chinese tech media 36Kr.

Users of bike sharing company Kala almost lost their deposits, as the company’s investors early this month declared their intention of withdrawing their investment, effectively taking the first batch of user deposits. Based in coastal China’s Fujian Province, the startup has attracted 2,800 registered users since it was launched late last month. Lin Bin, Kala’s founder, on Tuesday posted on WeChat that so far the founding team has borrowed enough money to refund some of the deposits.

Do users receive their money as swiftly as Mobike and ofo say they do? Other Chinese media reported on Wednesday that users get their deposit back soon after demanding a refund. As a test, I applied for a deposit refund on ofo, and saw the money return to my Alipay account within one minute. For users who paid deposits with bank cards, however, the process might take a longer time, but still less than a week.

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