A name for bids to installation proximity-based cell payments centers by means of the National Payments Corporation of India probably facilitates a personal monopoly that could not simply be illegal but also disproportionately gain a few, extensively the company organization led by Anil Ambani, Nandan Nilekani, co-founding father of Infosys and a key companion of the ruling dispensation.
A public procurement workout initiated in September 2017 by way of the National Payments Corporation of India (NPCI) asked bidders to offer ‘proximity price solutions’ for the United Payments Interface (UPI), an inter-bank cellular bills platform it installation 12 months in advance. Sixteen months have handed considering that then. Yet the name of the bidder chosen stays either undecided or has been determined but no longer yet been disclosed. What has therefore surfaced are several questions relating to the phrases and conditions of the bidding method and numerous uncommon trends surrounding it.
The NCPI become promoted as a now not-for-earnings company entity in December 2008 via the country’s relevant bank and apex economic authority, the Reserve Bank of India, with ten “center” public and personal promoter banks. This quasi-governmental frame becomes installation below the Payment and Settlement Systems Act and began commercial enterprise in August 2009.
The request for inspiration (RFP) launched by using NPCI on September 22, 2017, asked involved companies to publish proximity-based charge answers that met a hard and fast of technical standards. Among the conditions stipulated inside the RFP—leaving several capability bidders puzzled—become that the generation might be ‘patented’ and provided to NPCI on a ‘loose usage foundation.’
Instead of usage charges being paid by way of NPCI, the bidders had been encouraged to barter business agreements with banks and mobile wallets which might then be compelled to adopt the patented generation selected by way of NPCI to ply on its UPI platform. While P2P (peer-to-peer) transactions could not be monetized, potential bidders were free to generate revenue from P2M (peer-to-merchant) transactions.
In impact, the RFP sought to impose a private celebration de facto in addition to a de jure monopoly over a public technical widespread beneath the NPCI’s benevolent gaze. Was the ‘now not-for-profit’ NPCI abetting the accrual of disproportionate advantages to a clutch of private interests?
In April 2018, it changed into said that a few of the bidders shortlisted for a pilot trying out become an employer called ToneTag. The Bangalore-primarily based tech begin-up had supplied NPCI a legitimate-based proximity price era that could permit users to ship or receive money thru the United Payments Interface or UPI using an encrypted beep.
While ToneTag turned into most effective 4 years vintage at the time, its discern agency Naffa Innovations Private Limited changed into already being subsidized via a number of the largest names in records era within the united states of America: NASSCOM Foundation trustee Arun Seth is indexed among its administrators even as former Infosys finance leader T V Mohandas Pai, Facebook govt Anand Chandrasekaran, Gencoval Strategic Services chairperson Deepak Ghaisas and former Wipro vice-chairperson T K Kurien had invested within the company in 2016.
The first major cash inflow introduced via Naffa Innovations had been from Reliance Venture Asset Management Private Limited (Reliance VAMPL), the company project capital arm of Reliance Capital Limited within the Reliance Anil Dhirubhai Ambani Group which had put in $ 1 million (or ₹6.Four crore) within the cell bills technology in August 2015.
A month after ToneTag reportedly entered into talks with NPCI, its marketplace well worth shot up by using between $ 8 and 10 million (or among ₹fifty one crore and ₹sixty four crore) after a brand new round of funding came about by way of international bigwigs led by way of Amazon, Mastercard and Tropical Star Limited. By then, the employer had additionally entered into private alliances with several main banks and cellular wallets inclusive of HDFC Bank Limited, ICICI Bank Limited, FreeCharge and Airtel Payments Bank to share its era.
The 3 huge questions are:
Would the terms of the RFP issued through NPCI create a digital circumstance for a monopoly, after which hand it over to ToneTag?
Did this step occur because somebody in NPCI became aware of the ToneTag patent portfolio and sought to leverage it on ToneTag’s behalf?
Were they privileging the interests of the tech agency’s buyers and companions over the public correct and possibly also contravening the laws of the land?
Rules of the game
To solution those questions, it’s miles beneficial to outline what a proximity-primarily based fee solution is supposed to do. As in line with the NPCI’s RFP, a typical state of affairs for its utility could involve a payer and payee selecting the proximity charge choice on their respective UPI apps (which includes NPCI’s very own Bharat Interface for Money, or BHIM) and the payee entering the amount to be transferred. When the payer’s device would be introduced close to or in touch with the payee’s, the quantity and the payee’s virtual payment deal with (VPA) might be transferred to the payer—subsequently the time period ‘proximity fee.’ The transaction could be accredited once the payer keyed in her UPI passcode.
A proximity payment solution is, therefore, in addition to the present strategies for starting up transactions using the UPI: by means of typing in the payee’s VPA or scanning her precise QR (quick reaction) code. While the solution company will now not be aware of the transaction’s authentication process (which is limited to the respective banks of the payer and payee), it appears that transactions info could be available to the proximity fee answer issuer. As in step with the RFP, the solution sought might generate utilization records and ‘seize relevant information’ in its database.
As it’s far clean from the description above, such a method would add a greater measure of ease of transferring cash online. This includes transactions made using cellular telephones in addition to among cell phones and point of sale (PoS) gadgets along with readers of credit cards or debit cards.
NPCI indicated that the proximity-primarily based solution should rent a tone, a valid, a near subject conversation (NFC), a radio-frequency identification device (RFID) or deploy extremely-high frequency (UHF) era or a combination of those. Separate bids might be entertained for each of these categories.
A new clause that turned into introduced to the RFP by using NPCI on October 17, 2017, following a spherical of consultation with potential applicants, stipulated that the answer furnished through the bidder ought to had been patented.
This clause increases questions about whether or not NPCI’s RFP violates the Patents Act, 1970. Section 3(okay) of the Act, as amended in 2002, lists ‘a mathematical or commercial enterprise approach or a laptop programme in line with se or algorithms’ underneath ‘inventions now not patentable.’
The motive for putting this provision is that the general public agrees with that software is not patentable because it is not an invention but both a mathematical method or an algorithm, each of which isn’t patentable. The main propose of software program patents had been large foreign players who hold a stockpile of patents abroad and had been looking for their management of the Indian software program marketplace the usage of these patients. Interestingly, software patents are more and more being discarded or relatively confined in other jurisdictions inclusive of the EU and the United States.
Given that any proximity fee answer might depend best on algorithmic encryption to switch charge info among devices—in ToneTag’s example, on an algorithm to encode beeps of positive frequencies—patenting it would appear to head against existing Indian patent regulation on not accepting software patents.
The RFP additionally states that the payment answer presented need to be advanced on ‘open supply’ platforms the use of ‘non-proprietary’ protocols. Open source software program lets in each person to read, reproduction, modify and distribute the programme’s source code (this is, the device-readable script which runs it), giving customers a degree of transparency and control over how their statistics are used and encouraging a community-based totally approach to customizing or editing the programme.
This is in line with a directive of the Union Ministry of Electronics and Information Technology (MeitY) to public establishments below the Government of India, issued in March 2015, restricting the use of ‘closed supply’ software to the one’s circumstances wherein it changed into unavoidable—for ‘urgent (or) strategic reasons’ and ‘with enough justification.’
Therefore NPCI’s RFP, in requesting a patented answer, violates the clause regarding adoption of open source standards as well as the directive of MeiTY.
In reaction to queries raised through prospective bidders, NPCI clarified: ‘For a P2P (peer-to-peer) situation the successful bidder could no longer fee the NPCI. The bidder’s revenue version would be thru (this is, primarily based on) the rate negotiated by using the successful bidder with the member banks at the merchant transactions.’ However, the definition of open source software program under the MeitY framework consists of the keyword that its ‘supply code shall be unfastened from any royalty.’
Paradoxically, NPCI’s RFP seeks open supply standards-compliant charge answers while encouraging bidders to go into business agreements with interested banks and mobile wallets at the UPI platform, if chosen. This is towards the government’s own coverage on open source requirements because it amounts to permitting the chosen bidder to levy a royalty – or a tax of types – on using its software. The industrial burden of this arrangement is set to be handed directly to the end-person, the citizen, through her or his banking institution—in impact meaning that a personal firm is being granted the energy of taxation by using the virtue of its monopolistic power.
To put it very differently, this would be corresponding to a countrywide public group, first, selling a bottling factory, then, asking all cola makers to shift to its facility and, sooner or later, declaring that they would now also be free to pay royalty to an entity which already owns the patent for the layout of the straws which could match its bottles. In this absurd analogy, the bloodless drink is citizen’s virtual fee statistics, the bottle is the UPI platform and the bottler is the NPCI.
The big variations are that few other equivalents of the bottling facility are available in the virtual payments sector, its capability for growth ways surpasses that of cola, has more complex ramifications over different sectors and seems unlikely to be burped away anytime soon.
The RFP issued via NPCI also contained different irregularities. For example, clause five.26 (‘Bid Evaluation Process’) declared that ‘NPCI will continue with the methods for bid assessment and choice of successful bidder despite the fact that handiest one bid is acquired or best one bid qualifies after technical assessment.’
It is noteworthy that NPCI was taken into consideration it fit to undertake a public technological preferred with potentially extensive commercial and technical ramifications even inside the absence of aggressive bids. In impact, it had favored a ‘single bid’ procurement system in preference to opting to revise the phrases of the RFP underneath such occasions.
Another provision underneath Clause 4.2 (‘Eligibility Criteria’) mandated having a ‘full-fledged workplace (or) department’ in Mumbai as a pre-circumstance for filing bids. While the RFP may have blanketed a condition concerning bidders opening branches in the city in which the NPCI is headquartered for smoother operations, making it an a priori circumstance to even enter the gentle system became indeed uncommon for a countrywide institution, if not the primary such example ever.
It will also be argued that a single technological preferred need to no longer was promoted by way of an organization backed by means of the RBI and numerous predominant public banks in the first area as this will stifle innovation in India’s cell bills area. Even if one had been to disregard this criticism on ideological grounds, the NPCI had additionally left out other industrial options to be had within the procurement manner it went with.
As a quasi-governmental frame, it can have executed the research and development of one of this standard at its very own behest and launched it in the interest of the not unusual top. This might be in step with the ideas of ‘unfastened software’ championed by using advocates of technological sovereignty. Alternatively, it could have procured a proximity fee solution from the private sector and launched it beneath an unfastened software license.
Instead, permitting non-public negotiations among merchants using the UPI (together with banks and cell wallets) and the selected bidder implies that the commercial viability of NPCI’s RFP could also be suffering from its existing non-public agreements. Certain banks and mobile wallets already in alliance with the prospective proximity charge solution provider would be positioned to derive a competitive benefit over those which aren’t.
In order to remain feasible—particularly after recent traits inclusive of the primary bank giving the go-beforehand to interoperability between cell wallets and banks thru UPI and with fundamental card networks (including NPCI’s own RuPay) in October 2017—a hurry to dealer non-public deals with the bidder selected is in all likelihood, once the results of the procurement process are recognized and its proximity fee solution has been standardized.
For the bidder selected, this would amount to, what economists describe as, a ‘natural’ monopoly. Only in this example, it would be synthetic with the aid of NPCI, a public entity. Is ToneTag, one of the private companies shortlisted by NPCI, set to inherit one of this monopoly? Circumstances indicate that its backers can also have had this very end in mind.
Hitting the right notes
Three specific amendments to the unique RFP, issued thru NPCI’s August 2017 corrigendum, stand out. While ToneTag became probably not the most effective prospective bidder to have benefitted from these amendments, they do appear to have advanced its probabilities.
The amended RFP did away with a clause requiring the employer to have a minimal annual turnover of ₹50 million in the course of each of the three preceding financial years (this is, 2014-17). As in line with files filed with the Registrar of Companies, ToneTag’s figure enterprise Naffa Innovation would have been ineligible to apply without this modification for the reason that its mentioned net turnover become lower than the amount stipulated in two economic years. Its pronounced net turnover become ₹7,29,512 (0.73 million) in 2014-15 and ₹3,ninety eight,70,535 (39.87 million) in 2015-sixteen though it rose to ₹7,18,98,452 (71.Nine million) in 2016-17.
Another clause finished away with entailed that the entity in question is a profit-making body after taxes in at the least one of the preceding three years. While we couldn’t affirm whether or not Naffa Innovations made an income or loss in financial yr 2016-17, it reported losses of ₹25, ninety-five,445 in 2014-15 and ₹2,21,27,605 in 2015-sixteen.
As mentioned previously, the clause in NPCI’s RFP mandating that the submitted price answer be patented was also brought right now, thereby disqualifying bids regarding answers whose patent requests were below attention. As in keeping with its internet site, ToneTag has filed seven global patents at the gift.
Among ToneTag’s buyers is Arvind Gupta. Besides being the current CEO of the MyGovIndia public portal, beneath the Government of India’s MeitY, Gupta headed the BJP’s records technology cellular in the run-up to the 2014 general election which added the birthday celebration to energy on the center. BJP’s online marketing campaign was inside the information for combining the deployment of modern digital advertising strategies with ‘faux news’, that is, news articles with incendiary headlines which willingly disseminate incorrect information or hate speech. Gupta additionally claims to have worked with numerous leading information generation organizations in Silicon Valley earlier than joining the government.
While Gupta’s monetary stakes in Naffa Innovations aren’t acknowledged, his proximity to numerous nodes of strength within the rising virtual monetary landscape in India will honestly be of a huge hobby to ToneTag. Whether Gupta, a senior government legit and a member of the ruling birthday celebration, having invested in a fave for NPCI’s RFP increases purple flags over capacity conflicts-of-hobby which can stand up remains to be visible.
While ToneTag changed into reportedly Reliance VAMPL’s first portfolio addition in four years, it had formerly additionally invested in other finance generation companies inclusive of Gradatim IT Ventures Private Limited, a digital solutions company for banking and insurance, and Suvidha Infoserve Private Limited, a patron offerings company.
After the break up within the Ambani dynasty in 2006, younger brother Anil had inherited the more recent economic services and telecommunications divisions while elder brother Mukesh was fenced out of those sectors by way of a non-compete clause. Mukesh Ambani entered telecommunications as past due as 2010 with what would go on to grow to be Reliance Jio Infocomm Limited (hereafter, Reliance Jio).
At the time, it turned into assumed that the heirs to Dhirubhai Ambani’s empire could continue to be fierce business opponents but a declaration in April 2013 to share ₹1,2 hundred crores really worth of fiber optic infrastructure with Reliance Jio got here as a thaw inside the dating between the siblings.
After his elder brother’s horse entered the race and along with his telecommunication mission’s fortunes dwindling, Anil Ambani bowed out of the sector in September 2018—calling Reliance Jio’s access an act of ‘innovative destruction’ that, he believed, should create a monopoly.
Earlier that year, in August, Reliance Industries Limited had announced its foray into the banking quarter, in a 70:30 partnership with the biggest public sector financial institution within the country, the State Bank of India (SBI). Interestingly, its then-chairperson Arundhati Bhattacharya joined the board of the Mukesh Ambani-headed conglomerate now not very long after her retirement from SBI.
In what would later be launched as Jio Payments Bank, the richest man in India and Asia, the older of the Ambani siblings changed into additionally setting his bets at the cell payments region—calling information, ‘the new oil,’ and seeking to impose restrictions to foreign investment in the zone. As an aside, his organization owns the arena’s biggest petroleum refinery.
The connection among Naffa Innovations and Reliance VAMPL isn’t always the best one that would raise eyebrows. On 22 September 2017—the day NPCI’s RFP on proximity fee solutions changed into launched—ToneTag announced its new partnership with EdgeVerve Systems Limited, a wholly-owned subsidiary of the USA’s largest information era offerings provider Infosys Limited.
The software massive runs the Finacle platform for mobile bills. The partnership between ToneTag and Finacle will integrate the 2 entities in offering cell fee answers to a suggested 800 million customers across 94 countries.
Infosys Limited co-founder Nandan Nilekani is listed as a guide for improvements and public policy to the NPCI. Besides being among the key humans who conceptualized the UPI and a vocal proponent for its adoption, Nilekani turned into additionally appointed to go the RBI’s Committee on Deepening of Digital Payments on 8 January 2019. The committee is set to provide its guidelines by using April.
In a probably substantial war-of-hobby scenario, the high-stage committee’s mandate includes figuring out satisfactory practices ‘to boost up digitization of the financial system and financial inclusion through greater use of virtual bills.’
While Nilekani may now not be concerned with every day strolling of Infosys Limited as its non-executive chairperson, the tips of the committee he’s heading will probably have an effect on his business pastimes as a shareholder in the corporation, owning stake really worth over ₹5,500 crore alongside together with his wife Rohini.
Nilekani has been related to several contentious public coverage hints on residents’ records sovereignty within the past. He conceived of the facts collection and security framework for Aadhaar as the then-chairperson of the Unique Identification Authority of India (UIDAI) and encouraged the advent of national records utilities (NIUs) as chairperson of the Technology Advisory Group on Unique Projects (TAGUP) considering the fact that June 2010.
NIUs encouraged by this advisory panel—modelled at the NPCI—such as the Goods and Service Tax Network have been riled with reviews of conflicts-of-interest, arguably bobbing up out of the way wherein they’re based.
What has drawn lesser attention has been Nilekani’s affiliation with the Indian Software Products Industry Round Table (iSPIRT), a think tank related to Aadhaar whose members have long past on to move numerous for-earnings ventures using public facts amassed by the UIDAI.
Nilekani’s iSPIRT colleague Sanjay Jain is also on RBI’s committee for digital payments. After stepping down as UIDAI’s chief product supervisor in 2012, Jain has long past on to discovered Khosla Labs, a technology ‘incubator’ registered in Mauritius which invests in several begin-usaimparting Aadhaar-primarily based authentication services.
After the resignation of the previous RBI governor Urjit Patel in December 2018, it has been speculated that most of the reasons behind Patel’s selection to show in his papers become the Union government’s push for a self-reliant Payments Regulatory Board for virtual transactions, thereby weakening the powers of the primary financial institution. The new committee set up this January comes less than a month after Patel’s successor Shaktikanta Das took over.
Moreover, the appointment of Dilip Asbe because the CEO of NPCI a yr in advance, in January 2018 had also been seen by means of many as a ‘political’ desire driven through the RBI. A document through The Wire has claimed that Asbe’s appointment was confirmed after overruling the choice of the NPCI’s board. Among the theories being whispered at the time turned into that it was Nilekani who had pushed for Asbe. A source said to be privy to the proceedings had claimed to Caravan that it’s miles Nilekani who ‘shadow-runs’ the NPCI.
ToneTag’s links with Reliance VAMPL, EdgeVerve Systems Limited and a senior member of the BJP have left several questions unanswered approximately the doubtlessly disproportionate advantages NPCI can also endow upon those entities if its proximity fee fashionable is chosen.
This is in no way an exhaustive list of capability gainers. The internet worth of Naffa Innovations, ToneTag’s figure employer, had long gone up by using ₹2, seventy-nine, seventy-six,330 between economic years 2015-sixteen and 2016-17 with the addition of twelve non-public traders in the 12 months, as per filings with the Registrar of Companies.
Though it stays to be seen what the NPCI’s extended bidding procedure yields, what appears in all likelihood is that the precedent this will set for public procurement within the virtual age may additionally show risky, regardless of the proximity fee solution chosen. Writing approximately the modifications taking vicinity inside the region at breakneck velocity, you’ll only surprise: have we arrived at a new frontier of India’s gilded age of crony capitalism?
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ToneTag declined to comment on the status of its bid submitted to NPCI, the character of its partnerships with banks and mobile wallets and the virtual monopoly it may soon benefit, or to proportion information of Naffa Innovation’s shareholding shape, stating that our questions have been ‘commercial enterprise number unique’ and that ToneTag could not be able to ‘reveal the numbers or comment about (its) partnership reputation with NPCI.’
On January 25, particular questionnaires on the terms of the NPCI’s RFP looking for proximity fee answers were despatched to Shaktikanta Das, Governor of the RBI, Sudarshan Sen, RBI’s director nominated to NPCI, Dilip Asbe, CEO of NPCI and Biswamohan Mahapatra, NPCI’s non-govt chairperson. Another set of questions turned into sent to Nandan Nilekani, a non-executive director of Infosys Limited, the same day regarding the comments made by means of numerous assets quoted in this record. The questionnaires have been also despatched via India Post. At the time of the book, aside from a reaction from a consultant of ToneTag, none of the others had answered.
On Sunday, February 10, one of the writers acquired a smartphone name from a person representing a public family members firm who stated he was calling on behalf of the NPCI management led by Asbe. He asked that time is granted till three.00 pm on Monday, February 11, for the NPCI and Asbe to ship in a reaction. This article might be up to date have to response are available.