Quick Take: Ofo Won’t Follow Mobike in Ending Deposits

Bike sharing startup Ofo won’t follow its archrival in abandoning the industrywide practice of taking deposits from users, the company told Caixin.

“Ofo currently doesn’t plan to do away with the 199 yuan ($30) deposit. In fact, we have ended a program that had allowed users to ride deposit-free in 20 Chinese cities,” a company representative said Monday.

Last week, Mobike — owned by China’s largest online booking service platform, Meituan-Dianping — announced it will to stop charging users a 299 yuan deposit for the bike rental service.

The decision by China’s No. 2 bike-sharing company to keep demanding deposits from users comes at a time when the cash-strapped independent company is struggling to turn a profit as investors grow weary of a business model that depends exclusively on a never-ending supply of investment capital.

“Ofo’s reluctance to follow Mobike is partly due to a cash-crunch problem,” said Wu Dong, professor at Zhejiang University’s School of Management.

Deposits have been a point of contention in the shared-bike sector over the last three years as companies have been accused of misusing user funds to fuel their expansions. As of December, Ofo has taken up to 3 billion yuan in user deposits, according to sources familiar with the company’s financial situation.

Ofo has denied misusing user deposits.

Last month Ofo announced a 100-day plan to become profitable. As part of its efforts to transform itself from a cash-burner to a money-earner, Ofo has rolled out extra services, including a news feed, on its app and financial services. The company has also put ads on its bikes in some cities.

However, a lack of a clear, sustainable business model — users pay only 1 yuan to ride an Ofo bike for up to 30 minutes — means such services won’t be as effective, Wu said.

He said it could be difficult for Ofo to avoid “surrendering” to a wealthy backer as Mobike did.

Contact reporter Mo Yelin (yelinmo@caixin.com)