Prepaid model poses refund problems

Consumers report difficulties in getting deposits back. Wang Xiaoyu reports.

When Ofo was reportedly struggling with cash flow problems in late 2018, the bike-sharing startup was inundated by a wave of refund requests from its estimated 28 million active users who had placed rental deposits.

Many complained online that they were unable to get their money back for days, weeks or even months.

Two and a half years later, a few dogged customers are still tracking the status of their deposits, ranging from 99 to 199 yuan ($15 to $30), while Ofo's signature bumblebee yellow bikes have all but vanished from Beijing's streets.

In a May 7 post on the microblogging platform Weibo, a netizen with the user name MaaCiu wrote: "From Dec 20, 2018, to now, 900 days have passed, and it will probably take another seven years to recover my money. I cannot believe I was fooled by a bike-rental company."

An accompanying screenshot showed that MaaCiu was 9,402,427th in line to reclaim their deposit.

Data compiled by Weibo about two years ago estimated that Ofo had been returning refunds to 3,500 people a day on average. China Youth Daily reported that the daily rate had slowed to less than 200 people as of earlier this year.

Ofo's decline has served as a warning to customers, who may now think twice before agreeing to pay vendors upfront.

Like many other businesses, Ofo employs the advance payment business model, where a certain sum is paid as a deposit to a company, which facilitates its rapid growth and expansion.

Recently, the model has been adopted by several service sector players. In areas like after-school education, hairdressing and beauty, and fitness training, customers have been finding it increasingly difficult to resist the temptation to put down hefty deposits in exchange for access to discounted products or services.

Xu Fan, a human resources manager in Beijing, said she has lost count of how many businesses had failed to return her deposit.

"I remember there was a skin care outlet in Haidian district and a hairdressing salon chain in Chaoyang district. In most cases, the higher the deposit I paid, the bigger the discount I would receive. That's why I got on board in the first place," she said.

"Last year, I also topped up my account on a popular ride-hailing app by about 800 yuan. But I was never able to successfully hail a taxi because of the high demand during peak hours. I have already uninstalled the app because I do not think the deposit is refundable; either that, or it will take so many steps that I just cannot be bothered."

Lack of progress

Xu added that the situation has not really improved compared with a decade ago. "When I first came to Beijing for college in 2011, friends began telling me about small businesses running away without giving refunds, and I have since experienced similar difficulties. The situation remains roughly the same now," she said.

According to the Beijing Municipal Administration for Market Regulation, it handled more than 1,800 complaints related to advance payments or stored-value cards in 2010, up by nearly 40 percent from the previous year.

Meanwhile, a report released by the China Consumers Association in February called the prepaid model "a chronic disease" and "a deep pitfall" for consumers. "From the initial forms of purchasing cards and vouchers, to various kinds of paid membership and reloading funds to gift cards, business owners in different industries and sectors are exhausting all means to expand the application of the prepaid model, which can cut costs for consumers but can also increase the risks for them," it said.

The report singled out the after-school education sector, saying the COVID-19 outbreak had exerted a heavy toll on the industry (in terms of offline classes), leading to a surge in the number of businesses closing without advance notice.

A notable case erupted on Oct 19 when a private tutoring company that operated more than 1,000 outlets at its peak was hit by media reports and anecdotes suggesting that it had run into financial problems.

In response, hundreds of parents rushed to the company's headquarters in the capital and demanded their deposits be returned. Before that, parents in Tianjin and Chengdu, capital of Sichuan province, had encountered similar problems with the same company.

"I spent 325,000 yuan on it. That's enough to buy a car," yelled one woman in a video clip circulating online. "Another parent had paid 450,000 yuan, even more!" a man chipped in halfway through the clip.

The fury and helplessness of parents were also evident in an online post dated Oct 21 on Blackcat, a complaint-filing website.

The poster had spent 510,000 yuan on prepaid courses with one of the tutoring company's outlets in Beijing's Tongzhou district in September 2018.

"After the (COVID-19) epidemic broke out, my child barely took offline classes there. About 240 classes are left on the card," the user said.

"I have tried to contact teachers via WeChat, but they have gone. The outlet has closed. I don't know where to go for a refund. No one can be contacted."

Xu, the human resources manager in Beijing, said she no longer has any faith in the credibility of merchants. Instead, she is training herself to refrain from impulsive purchases and to carefully evaluate vendors and her own shopping habits before using her credit card.

"When I shop at small stores, I avoid putting down deposits. I have also learned to turn a deaf ear to salespeople's patter," she said.

"If I like a particular hotpot restaurant and I am sure I will go there regularly, I will probably buy a prepaid card that qualifies me for discounts. I think it's important for customers to make their own judgments."