BEIJING/SHANGHAI, March 27 (Reuters) - Walmart Inc has placed a bet on Tencent Holdings Ltd's mobile payment system, giving the tech giant a boost in its battle with Alibaba Group Holding Ltd for pole position in China's fast-growing payments market.
Walmart, the world's largest retailer, on Tuesday said it had dropped Alibaba-linked Alipay in all its stores in the western region of the country, after agreeing a tie-up with Tencent to use its popular WeChat payment system.
The move underscores how China's retail market is dividing into two camps around Alibaba and Tencent, tech behemoths worth a combined $1 trillion who are shaking up the online and offline retail market.
The two firms, who have spent billions of dollars on retail deals since the start of last year, dominate the country's third-party mobile payment market. Alibaba-linked Alipay leads the field, with Tencent's WeChat Pay catching up fast.
Chinese consumers - and retailers - often have both Alipay and WeChat, which can be used to pay for shopping online or in physical stores by scanning QR codes with a smartphone.
Alibaba is China's top e-commerce player, while Tencent is strong in social media and gaming and has - along with Walmart - a major stake in number two online retailer JD.com Inc.
A Walmart spokeswoman said the firm had entered into a "partnership" with WeChat Pay in western China, which was a "business decision" to improve customer experience.
The Western China region is a large area including provinces like Sichuan, Yunnan and Gansu. It is, however, more sparsely populated than the wealthier eastern part of the country.
"In the future, Walmart will cooperate with more partners to provide payment solutions with more convenience and benefits," she said in emailed comments, adding the firm accepted payment methods including cash, cards and mobile payments.
Tencent said it welcomed Walmart's decision and would push forward with plans to help support vendors with digital tools in the "smart retail" arena.
Alibaba and Alipay declined to comment.
The Walmart move comes after Tencent and Alibaba have between them splashed over $10 billion on retail-focused deals, boosting their reach offline and meaning few brick-and-mortar sellers are left without an allegiance to one or the other.
Reporting by Pei Li and Adam Jourdan Editing by Christopher Cushing