Has NPCI-led proximity mobile payments facilitated leeway to ToneTag?

To make available new and epedite method of payments other than text and QR, the National Payments Corporation of India (NPCI) had sixteen months ago floated ‘proximity payment solutions’ for bidding.

The proximity payments promised to enable consumers to make digital payments at merchant outlets without any physical contact with the acceptance terminal. In short, it is said to ensure higher levels of security and speed for such transactions.

Soon NPCI released request for proposal (RFP) asking interested companies to submit proximity-based payment solutions in line with a set of technical criteria.

In Sept 2017 released RFP among many things, it noted that the successful bidder should provide the proximity solution to NPCI on a free usage basis. The bidder was not expected to get into a commercial arrangement with banks for a P2P scenario. This essentially means bidders were free to generate revenue from P2M (peer-to-merchant) transactions only.

In following month, it added another new clause that said that the technology would have to be ‘patented’ by the bidders.

However, the new clause raised questions about whether NPCI’s RFP violates the Patents Act, 1970. Section 3(k) of the Act, as amended in 2002, lists ‘a mathematical or business method or a computer programme per se or algorithms’ under ‘inventions not patentable.’

RFP clause for open source,  the payment solution offered ought to be developed on ‘open source’ platforms using ‘non-proprietary’ protocols, also violates the clause regarding adoption of open source standards as well as the directive of MeiTY, according to a Newsclick report.

NPCI has encouraged bidders to enter into commercial agreements with interested banks and mobile wallets on the UPI platform. This is against the government’s own policy on open source standards as it amounts to allowing the chosen bidder to levy a royalty on the use of its software, the report added.

That is not all.

NPCI is alleged to have amended RFP, a clause requiring the company to have a minimum annual turnover of Rs 50 million during each of the three preceding financial years (2014-17) to favor Tonetag, one of the three firms, chosen for a pilot run in April 2018.

The set of action, one after another, involving the startup lead to a question, was someone in NPCI aware of the ToneTag patent portfolio and sought to leverage it on ToneTag’s behalf.

Till date, ToneTag is reported to have filed seven global patents.

The company associations with with Reliance VAMPL, EdgeVerve Systems Limited and a senior member of the BJP are also in questions as they would be the gainer if Tonetag proximity payment standard is selected.

Interestingly, a month after ToneTag reportedly entered into talks with NPCI, its market worth shot up by between $8- 10 million. It also raised a funding round from Amazon, Mastercard, and Tropical Star Limited.

The company also made private alliances with several leading banks and mobile wallets including HDFC Bank Limited, ICICI Bank Limited, FreeCharge and Airtel Payments Bank to share its technology.

Four-year-old Tonetag and its parent firm Naffa Innovations Private Limited has the backing of big names in IT industry including NASSCOM Arun Seth, Arvind Gupta CEO of MyGovIndia portal, Anil Ambani, T V Mohandas Pai, Facebook executive Anand Chandrasekaran, Gencoval Strategic Services chairperson Deepak Ghaisas and former Wipro vice-chairperson T K Kurien.

In space of one year, the company net worth had shot up by Rs 2,79,76,330.

There are many questions that NPCI and Tonetag may have to answer to ascertain that what they are doing is under the ambit of law and not disproportionately benefit a chosen few.