(Yicai Global) July 27 -- A communications service provider that operates digital locks on millions of Ofo bikes has begun cutting off the systems after the cycle sharer failed to settle its debts as it scrambles to keep afloat.

The firm had already disconnected two million locks as of midday yesterday, National Business Daily reported. Ofo, officially Beijing Bikelock Technology, owes the supplier about CNY4 million (USD587,000) and has not made any payments in over six months, the report cited the firm as saying. The supplier warned on July 25 that if the debt was not settled the same day, it would begin cutting off services for up to three million locks.

Ofo, which has more than 10 million bikes around the world, told NBD that it was working on a solution and all of its bikes can be used as normal.

The bike sharer, backed by e-commerce titan Alibaba, is stuck in an uphill struggle as it looks to keep abreast of a sector that has wiped out tens of companies in the past year alone. It and Tencent-backed rival Mobike have stood head and shoulders above the competition and combined for a 90 percent share of the China market while the likes of Bluegogo and Xiaoming have met their demise, but the going has been far from smooth.

Fending off competitors proved costly for both of the top players, with financial resources being drained by price wars and bike maintenance. The lack of a clear profit model and positive cash flows have made it particularly difficult for them to embrace independent operations, with many investors saying a merger between the two titans would be the only way for them to swing into the green.

Didi Chuxing, once Ofo's largest shareholder, was one of them. It sent executives to Ofo's offices last summer in a bid to assume greater control over the company and draw up blueprints for a merger, but met resistance from its founder Dai Wei who was reportedly not included in those plans. Dai managed to avert a union by securing USD866 million in funding from Alibaba, while Didi set up its own bike-sharing platform Qingju Bike.

Ofo announced earlier this week that it would halve its annual membership fee in China, which grants users unlimited rides for a year, to CNY99 (USD15) and offers users the chance to bag CNY50 in cashback by referring their friends. The move comes at the same time as the firm is withdrawing from a host of overseas markets, including Australia, India and all European cities excluding London, Milan and Paris.  

Editor: James Boynton