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Sharing economy rides into bumpy future

By  : INDICS Operator Updated  :   2018-12-25 13:51:24

Source: China Daily

Thousands of angry users of bike-sharing giant Ofo have been lining up at its Beijing headquarters over the past few days to seek refunds for deposits paid, as the company faces accusations from netizens and the media that it is dragging its feet on the paybacks.

Once touted as a symbol of China's emerging sharing economy, cash-strapped Ofo is now struggling financially.

As of Saturday, the bike-sharing pioneer had received nearly 13 million online applications for deposit refunds.

Initially, users of the service were asked to pay a 99 yuan ($14) fee before they could use shared bikes, which was later increased to 199 yuan.

Based on this, the company needs to return at least 1.3 billion yuan to its customers.

Dai Wei, Ofo founder and CEO, said in an internal letter that the company had been under intense cash flow pressure throughout this year, and had even considered filing for bankruptcy.

"As we return deposits, pay off debts to suppliers and maintain daily operations, we have to turn every 1 yuan into 3 yuan," Dai wrote in the letter.

A Beijing court has barred Dai from high-end consumption and "nonnecessities of life and work" due to both his and the company's failure to repay debts.

Ofo has also been urged to refund users' deposits smoothly and quickly, according to the Ministry of Transport.

Chen Yinjiang, deputy secretary-general of the China Consumer Protection Law Society, cited regulations that cover non-motorized vehicles in Beijing. These state that bike-sharing platforms are required to put deposits into a designated bank account and refund the money on time.

Chen said, "I would suggest that the related departments investigate Ofo's current situation, inform consumers and make moves to protect users' legal rights."

According to Chen, if handled inappropriately, the Ofo case will represent "an extraordinary attack on the credibility of the whole industry". He added, "Then, it will be difficult to regain consumers' trust.

"The crisis at Ofo is a lesson, especially for companies taking part in the sharing economy. After reaping the benefits brought by these blossoming new shared models, companies need to shift their focus from rapid market expansion to improving their functionality and customer experience across all their offerings," Chen said.

Raymond Wang, a partner at the consultancy Roland Berger, said: "Ofo's case will be a warning to other internet startups. Ofo has invested heavily in rapid market expansion at home and abroad, leaving less room for refined management and maintenance."

He said that without sufficient venture capital investment, the company will struggle to stay afloat "via its unclear profit model".

Ofo is just one of the startups that have emerged in recent years that are part of the nation's sharing economy boom. Fueled by several rounds of venture capital investment, they usually offer smartphone apps to enable customers to rent various services.

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