SARB: Third Draft Authorisation Framework for Embedded Finance Unveiled

• The SARB's Third Draft Authorisation Framework, published in June 2026 and set for finalization by November 2026, introduces a new regulatory approach for digital payments in South Africa.
• This framework adopts an activity-based regulation model for embedded finance, focusing on the nature of the service rather than the type of institution providing it.
• Platform operators must now meticulously map their specific activities, as simply partnering with a licensed financial institution is no longer sufficient to determine compliance obligations.
• The regulations imply that commercial descriptions like "digital wallet" are irrelevant; actual regulatory responsibilities are dictated by the underlying financial activities performed.
• Examples like Buy Now, Pay Later (BNPL) services demonstrate how various legislative acts, including consumer credit and data protection, will apply based on the specific integration of embedded finance.

Instead, platforms are now compelled to undertake a detailed mapping exercise, meticulously identifying and differentiating between the regulated activities they perform independently and those handled by their banking or financial partners.

The South African Reserve Bank (SARB) has unveiled the Third Draft of its Authorisation Framework in June 2026, signaling a significant shift in the regulatory landscape for digital payments. This framework, slated to become law by the end of November 2026, directly addresses the complexities arising from the rapid evolution of the digital payments ecosystem and the increasing integration of financial services into non-financial platforms, commonly known as embedded finance. The SARB digital payments framework aims to provide clarity and structure to an area where innovation has often outpaced traditional regulatory responses.

A cornerstone of the SARB Third Draft Authorisation Framework embedded finance approach is its move away from static, institution-based regulation towards an activity-based or "eye test" methodology. This means that the regulatory environment applicable to a service will be determined by the specific nature of the payment activity being performed, rather than whether the provider is a traditional financial institution or a non-financial entity. This nuanced perspective acknowledges the diverse ways financial solutions are now offered to customers, often through platforms that partner with established service providers like banks or even retailers.

The proposed regulations fundamentally alter how platforms offering embedded financial services must assess their compliance obligations. Previously, the primary question for many platform operators was whether they had a licensed financial services partner. However, the SARB's new framework renders this inquiry insufficient for a comprehensive understanding of regulatory responsibilities. Instead, platforms are now compelled to undertake a detailed mapping exercise, meticulously identifying and differentiating between the regulated activities they perform independently and those handled by their banking or financial partners.

This shift creates a distinct "push and pull effect" for platform operators, demanding a granular understanding of every service they provide. For instance, a platform solely responsible for initiating payments will face a different set of embedded finance regulatory responsibilities and compliance requirements compared to one that also receives funds on behalf of its customers. This complexity necessitates a deep dive into the minutiae of the regulations governing each specific service, moving beyond a superficial understanding of partnerships to a thorough analysis of operational roles and functions.

The implications of this activity-based regulation extend to how platforms present themselves publicly. A commercial description, such as labeling a service a "digital wallet," holds little weight against the actual regulatory and governance considerations that apply to its underlying operations. The SARB's framework emphasizes substance over label, requiring platforms to align their internal compliance with their real-world activities, irrespective of their marketing terminology.

A pertinent example of how these regulations affect embedded finance operators is the proliferation of Buy Now, Pay Later (BNPL) offerings. These services have gained significant traction in South Africa and other African markets by allowing consumers to spread payments over a defined period, often with retailers partnering with BNPL providers to offer this facility. From a governance and compliance standpoint, a BNPL provider's responsibilities can be influenced by a range of legislation, including consumer credit laws, broader financial services regulations, consumer protection acts, and data protection statutes. As highlighted by Lerato Lamola, Partner at Webber Wentzel, the specific manner in which embedded finance is integrated into a platform critically determines its regulatory treatment, underscoring the need for expert legal guidance in this evolving sector.

Lawyers and compliance officers must advise clients operating embedded finance platforms in South Africa to meticulously map their specific activities, as the SARB's new activity-based regulatory framework shifts responsibility beyond just partnering with a licensed financial institution, requiring a re-evaluation of their own compliance obligations.

Source: Original reporting via Webber Wentzel insights