(Beijing) — UnionPay, China’s largest card-payment network operator, is struggling to stay relevant in an increasingly cashless economy.

Despite its recent tie-up with online retailer JD.com Inc., the first with a third-party payment service provider, market watchers believe the partnership may not meaningfully help UnionPay regain traffic lost to QR-code-based platforms, dominated by WeChat Pay and Alipay.

Using smartphones to scan QR codes to make payments has seen an explosive growth in China. In the first quarter, such transactions grew 113% from the same period a year ago to 2.27 billion yuan ($337 million), according to consulting firm iResearch. WeChat Pay and Alipay, owned by Tencent Holdings Ltd. and Ant Financial Services Group respectively, accounted for a combined market share of 94%, with JD Finance — the payment unit of JD.com — ranked sixth with a tiny market share of 0.8%.

But plastic cards are not yet a lost cause. In 2016, 115.5 billion transactions were completed with debit and credit cards, still more than the 25.71 billion transactions completed with mobile-payment methods, according to data from the central bank. However, the number of mobile transactions jumped 86% from a year ago, dwarfing the 35% growth of card-based transactions.

The partnership

On July 19, UnionPay said it will offer a touch-and-go payment service to JD.com customers, alongside the QR-code-based service provided by JD Finance itself.

By using the Near Field Communication (NFC) technology developed by UnionPay, JD.com customers who have a bank card can register for the service. By tapping a smartphone at an NFC-enabled card reader, one can now shop offline at over 10 million brick-and-mortar shops in China and abroad with a JD.com account.

The new service is essentially a contactless payment service with smartphones. But instead of docking directly with banks as debit and credit cards do, this service routes all transactions back to the customer’s JD.com account and settles through UnionPay’s fund transfer network.

The plan is to reroute and attract more traffic through UnionPay’s interbank fund-transfer network and to push for a wider adoption of its NFC payment technology, known as Quick Pass.

“It’s all but possible for internet companies to work together with traditional financial institutions,” said Xu Ling, JD Finance deputy president. “Such a partnership will create new value and will not impede future development of the online payment market. Plus, this product complies with requirements from the regulators.”

The new UnionPay-JD contactless payment service is already available on iPhones, and Android users will have access to it soon, sources at JD.com told Caixin. Data provided by UnionPay show that on the day it was launched earlier this month, 43,800 users activated the service — more than the same-day increase of Apple Pay users who hold accounts of China Merchants Bank, one of the several bank partners with Apple Pay.

Do What Regulators Want

The plan has another element to it: UnionPay directly settles all the transactions that go through its system, and that money doesn’t go through JD.com. The state-owned network will then have full access to transaction details, which the country’s authorities have always wanted.

JD.com will submit details of each transaction that goes through the UnionPay network, sources told Caixin.

China has long been trying to crack into the seemingly mysterious world of online payments. The latest measure to gain as much access to transaction details as possible was the creation of a clearinghouse dedicated to third-party online payments, the first of its kind in the world, which went live in June. The new platform essentially cuts the direct link between third-party payment providers and banks, with the People’s Bank of China being the sole intermediary for clearance of all online transactions.

Before the clearinghouse came into existence, most online payments in China are handled separately under different terms between payment service providers and banks. This practice has raised concerns because it is difficult for banks to maintain consistent standards and control risks, with the online payment market seen as potentially a hotbed for money laundering and other cybercrimes, which was out of the regulators’ reach.

Why is UnionPay late to the game?

In fact, UnionPay was among the first to develop QR-code technology in China. However, the state-owned financial company was too slow to bring the technology to market, while more-agile internet companies have leaped far ahead, almost immediately when the technology could be commercialized.

Despite Chinese government’s temporary ban of QR-code-enabled payments in 2014, Tencent and Ant Financial continued to upgrade their respective systems to address regulators’ safety concerns. When the number of users grew so quickly that the government couldn’t seem to be able to stop the tide, the ban was lifted in mid-2016, but UnionPay by then was far too behind to catch up.

Now, UnionPay’s NFC-based mobile payment service appears one of its last few hopes.

Unlike QR codes, the touch-and-go NFC technology does not require an internet connection to make a payment. UnionPay says the advantages of this payment method is that you don’t need to unlock your smartphones or open any app. It also says NFC is considered safer as it reduces the likelihood of bank-account information being leaked.

Qiu Jian, an assistant manager at UnionPay, said the huge popularity and user loyalty tied to QR-code-based platforms pose the biggest challenges. But UnionPay can still aim at expanding its user base as long as it has strong client management capability and flexible marketing strategies.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)