Zhima Credit to do away with deposits

Zhima Credit, the online credit scoring service of e-commerce giant Alibaba, said on Wednesday that it would invest 1 billion yuan ($151 million) to eliminate security deposits in the sharing economy.

The company said it would upgrade its deposit-free plan for customers with high credit scores. It will also come out measures like bringing in insurance companies to provide support to merchants and service providers who do not charge any deposit from consumers.

Zhima Credit will extend the scheme gradually to other sectors such as house rentals and hotels.

Hu Tao, general manager of Zhima Credit, said some merchants have expressed concerns that users would not return their products. If no deposit is charged, companies will face losses. Therefore, insurance will be included in Zhima Credit's system so that merchants can claim insurance to cover their losses.

Shenzhen-based portable charger service provider Jiedian Technology connected to Zhima Credit's risk control system and started to charge no deposit from its users since April this year. Since then, orders have surged sixfold and only 0.014 percent of the users did not return the charger after the seven-day use limit.

As Hu explained, deposit will no longer be necessity when the merchants or service providers can seek enough profits and little risk. Some industries, which have seen rapid growth in the past few months, are starting to be less reliant on deposits and resorting to business models that are reliant on rental income.

"Probably it will be very difficult. But we have decided to put all our efforts into it," he said.

The company's decision follows the series of sudden collapses of bicycle sharing companies recently due to the panic withdrawal of deposits. Beijing-based Coolqi saw a flurry of panic deposit withdrawals in September and was subsequently brought over by Chengdu-based Baike Technology.

Beijing-based bicycle sharing company Bluegogo faced a similar situation in late October. On Nov 16, its founder Li Gang posted a statement online admitting that the company was facing operational difficulties. It was also taken over by Baike Technology.

Reports say that Bluegogo owes nearly 200 million yuan to bicycle makers. A large number of its employees have not been paid for up to six months.

But Li did not attribute the downfall of this one-year old startup to the problem of deposits. He vaguely implied that lack of investment and the overwhelming competition from the top two players－Mobike and Ofo－resulted in Bluegogo's failure.