Walmart, the US retailer, has ditched Alipay in favour of Tencent's mobile payments app in western China, dealing a fresh blow to Alibaba in the battle between the country's biggest tech groups to dominate the $15.5tn payments market.

Payments have become a key battleground for the Chinese groups — both of which rank in the world's 10 most valuable companies — as they compete in markets spanning retail, entertainment and logistics.

Walmart, which along with Carrefour is among the biggest foreign retailers in China, has been accepting Alipay in its 400-plus stores in the country. However, this month it said it had entered into partnership with WeChat Pay in the western region.

Payments yield only wafer-thin profits but have enabled the tech companies to expand their financial services arms to include more profitable areas spanning loans, insurance and asset management.

Yu'e Bao, the money market fund of Ant Financial, the payments affiliate of Alibaba, for example, is the world's largest with about Rmb1.5tn under management.

Part of the market's growth is due to China's poor system of legacy banking — the country has mostly leapfrogged credit cards, for example — but has also been fuelled by innovations such as moving hongbao, the red packets of money given at lunar new year, online.

Shops, taxis and hospitals across China accept both the payment methods of Tencent and Alibaba, with some shops and services refusing to accept cash.

Alibaba remains the industry leader but Tencent has made huge inroads. Tencent, for example, scored an early win with Starbucks' coffee shops across China but late last year the chain said it would accept Alipay too.

Walmart declined to explain why the company was ditching Alipay, saying: "This business decision is intended to help us offer the best all-round shopping experience for our customers. WeChat Pay is widely accepted and trusted in China."