Third-party Payment Providers At A Regulatory Crossroads

South Africa’s proposed payment-system reforms may prove especially important for third-party payment providers (“TPPPs”). The South African Reserve Bank’s (“SARB”) updated draft Directive in respect of specified payment activities within the national payment system signals a move away from the existing regime toward a broader activity-based framework, under which payment activities are regulated by reference to what a business does rather than only what kind of institution it is. For businesses operating in the TPPP space, that is not a technical adjustment at the margins. It points to a more formal and more direct regulatory framework for an activity that has become increasingly important in the digital payments ecosystem.

The direction of travel is clear. The current consultation process confirms an intention to widen access to the national payment system (“NPS”) while placing those activities on a clearer regulatory footing. For TPPPs, the significance lies in the fact that the draft framework appears designed to replace the existing position under which many third-party payment activities have historically operated through a combination of the National Payment System Act, sponsor arrangements, Payments Association of South Africa (“PASA”) processes and market practice, with a more direct authorisation model under the SARB.

That matters because of how the draft Directive conceptualises the TPPP role. It defines a “third-party payment provider” as a juristic person that provides third-party payment services and provides that persons conducting payment activities listed in Annexure B must obtain authorisation or designation from the SARB unless specifically excluded or exempted. The supporting impact assessment also indicates that payment institutions, including TPPPs currently registered with PASA, are expected to move into a framework in which the SARB assumes responsibility for authorisation and supervision.

In practical terms, that suggests that TPPPs are being drawn closer to the regulated core of the NPS. The supporting materials emphasise competition, innovation and financial inclusion as policy objectives, but they also make clear that broader access is expected to come with a more explicit compliance architecture. That includes requirements relating to governance, risk management, safeguarding of client funds, anti-money laundering, counter-terrorism financing and counter-proliferation financing controls, reporting, supervision and enforcement. For TPPPs, the issue is therefore not simply whether access is widening. It is also how the cost and complexity of operating in that widened space will change.

The draft framework does not remove sponsorship from the picture. On the contrary, it preserves sponsorship arrangements, but on a more express and structured basis. A payment institution that conducts or seeks to conduct a TPPP business activity may operate under a sponsorship arrangement with a qualifying sponsoring institution or another authorised TPPP that meets the SARB’s sponsorship requirements. The sponsoring institution must ensure compliance with the applicable requirements and remain accountable for the TPPP business activity risks associated with the sponsored TPPP. That means sponsorship may remain commercially relevant, but it is likely to sit within a far more deliberate regulatory structure than before.

This is why the practical challenge for TPPPs is likely to be less about understanding the headline reform and more about preparing for its operational consequences. Questions around regulatory status, capital, safeguarding, outsourcing, risk management, internal governance, reporting lines and application readiness are likely to become more important. For some businesses, the key issue may be whether to pursue direct authorisation. For others, it may be best to structure an ongoing sponsorship model in light of the proposed framework. Either way, the transition is likely to be document-heavy, detail-driven and operationally significant.

In that context, a structured readiness exercise may be particularly valuable. For many providers, the real pressure point will be the application process itself: identifying the required documents and information, understanding how the draft framework differs from the current PASA-linked regime, testing whether existing policies and controls are sufficient, and ensuring that the eventual submission is complete enough to avoid unnecessary delay. We have accordingly developed a practical Draft Directive toolkit to assist clients with that process, including a detailed application checklist, a comparative guide to the current and proposed requirements, application review, submission assistance, post-submission engagement support, and an hour of tailored training with a question-and-answer session.

The broader point is that TPPPs are no longer sitting at the regulatory edge of South Africa’s payments system. Under the draft reforms, they appear to be moving closer to its centre. That is promising for competition and innovation, but it also means the legal and compliance expectations around TPPP activity are becoming more explicit. For businesses in this space, the consultation period is therefore more than a formal comment window. It is an opportunity to assess how the next phase of payments regulation may reshape both market access and operating models.