China's bike rental companies Mobike and ofo are in talks to merge, Bloomberg's Ms Lulu Chen reported on Tuesday.
There's not a sane mind in the world who does not think that's a good idea. One parallel is the merger of Didi Dache and Kuaidi Dache to form Didi Chuxing, which then eventually folded in Uber China. They are, of course, extremely different businesses.
Car-sharing firms generally don't own inventory. This means they are not spending buckets of money buying assets that get piled up like trash on sidewalks, nor do they have to worry about huge maintenance costs.
And while they do dish out vast sums subsidising drivers to get them to use the platform, rider-driver hook-up services charge the consumer more than a token fee.
Despite purchasing bikes by the ton - ofo and Mobike have more than 13 million combined - they hardly charge anything for rental, making outsiders scratch their heads at how this can possibly make sense. But there is one factor car-sharing firms don't enjoy: deposits. Beijing Mobike Technology and Beijing Bikelock Technology (trading as ofo) require users to pay a surety upfront for the right to rent. With millions of users on their books, that translates into billions of dollars of cash on hand.
Let's run the numbers. Mobike claims to have 100 million users, and it requires a 299 yuan (S$61) deposit (let's assume this surety is similar in all markets). That means it has just shy of 30 billion yuan (S$6.1 billion) in cash.
That is four times the amount venture capitalists have thrown at it. The deposit pile at ofo comes in at around two billion yuan, a lot less because it has fewer users and demands a smaller bond. It also allows deposit-free rental for some with a good Sesame Credit score.
Compare the combined US$4.8 billion (S$6.5 billion) of deposit money with the US$2.3 billion CB Insights estimates the duo have raised through outside funding and you realise the unwitting venture capitalists in all of this are actually China's millions of bike riders.
With only seven million bikes but 100 million users, Mobike holds 4,200 yuan in cash per bike. Ofo's numbers aren't anywhere near as favourable.
In theory, such funds are like callable deposits, but in reality, the process is a little more cumbersome - most users won't bother asking for their money back because they plan to keep renting bikes.
Executives from both rental companies have said publicly that this cash isn't being used to buy extra bikes or fund operations. Assuming that it's true, this would be the smartest move possible.
Instead of frittering away 32 billion yuan on unprofitable assets such as bikes, the firms can easily funnel those funds into money markets and other investments that earn around 4 per cent annually. It may not make up for the billions burnt on bikes and operations, but babysitting cash is one easy way to make a dime.
• This column does not necessarily reflect the opinion of Bloomberg and its owners