Industry observers say provider 'failed to address concerns' from State-backed competitor UnionPay

Alipay, China's largest third-party e-payment provider, announced on Tuesday it will discontinue its still-nascent offline-payment service, a move widely perceived as a capitulation to its State-backed rival, China UnionPay.

While the company declined to elaborate on its reasons, industry observers believe Alipay's encroachment into the business of offline payments was eating away market share once firmly held by the country's largest card processor. UnionPay has recently insisted that its services are still required to conclude all bank transactions.

The abrupt cancellation of the collect-on-delivery service stands in stark contrast to Alipay's bold entry into the market last year, when it unveiled a 500 million yuan ($81.7 million) investment plan with the introduction of a handheld device to consolidate package tracking records with card payment functions.

"Due to certain widely known reasons, Alipay will stop all offline point-of-sale services," the company said on its official micro blog to announce the move.

Alipay promised to handle the issue properly with its merchant partners, and apologized for any inconvenience, according to the announcement.

But the company will not hesitate to "continue exploring payment innovation".

In March, Alipay introduced its proprietary POS machine, which allowed couriers to track parcels and accept payments for online-ordered goods at the same time.

The rollout was part of the broader strategy of Alibaba Group Holding Ltd, Alipay's parent, to grab a bigger share of business in the financial sector and satisfy soaring demand for package-tracking from China's booming e-commerce industry.

According to iResearch, a Beijing-based IT consultancy, online payments are expected to account for only 15.8 percent of all online transactions in 2015. About 70 percent of all online purchases made on China's business-to-customer sites are paid on delivery.

While Alipay holds almost half of the online-payment market, that has failed to translate into even bigger revenue, given consumers' preferences to pay for online-purchased, big-ticket items at the time of delivery.

Delivery people in China typically carry two devices, one for tracking and the other a portable POS terminal. Alipay's wireless device was able to combine both functions into one machine, ensuring that merchants receive payment within 24 hours of delivery.