From nightclub owner to R1.65bn tech sale: The iKhokha story

Key topics:

• Matt Putman co-founded iKhokha after poor experiences with bank card payments.

• iKhokha overcame challenges to become the first SA-certified card device.

• Nedbank acquired iKhokha for R1.65 billion, marking a successful exit.

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By Jan Vermeulen

Had it not been for Matt Putman’s poor experience with a major bank’s card payment product while co-owning a nightclub during his university years, he might never have co-founded iKhokha.

“I had been involved in a nightclub as a part-time owner whilst at varsity, which is another story in itself and taught me many life lessons,” Putman told The Founder Files in a November interview.

“One of the things that I experienced there was we had a card machine from one of the Big Four banks, and it was a terrible experience.”

The Big Four then were Absa, FNB, Nedbank, and Standard Bank. Capitec had been established and was growing rapidly, but was still small in comparison. None of the digital banks existed yet.

Putman explained that he and co-founder Ramsey Daly grew up in entrepreneurial households. His father, Clive Putman, has a PhD in electronic engineering and started businesses in the security hardware space.

This environment shaped Putman’s ambition to be an entrepreneur from a young age. His early ambition was to find something to “sink his teeth into and scale” and to “do things differently,” avoiding a traditional job.

“Having sold that nightclub, I was working with my old man on a side project that he’d taken on, having exited one of his businesses, and I was trying to get inspiration.”

Putman said he subscribed to Fortune and Time Magazine to learn about innovation trends in places like the U.S., where the Internet revolution was in full swing.

Fortune carried an article about Twitter co-founder Jack Dorsey’s new venture, a payments company called Square (since rebranded to Block).

The article sparked the idea of using mobile phones to help small businesses accept card payments, a service no one had implemented in South Africa yet.

“We wrote my father in, who obviously had the hardware engineering chops and had actually built technology businesses before. Then we built a prototype,” said Putman.

Piece of cake

They designed and built a prototype card machine that plugged into an iPhone using the old 30-pin dock connector that Apple used on the iPhone 3 and iPhone 4.

Initially, the prototype could only read a card number. However, that was enough for them to raise initial seed capital.

“Ramsey and I often would joke… when we went to my old man to say, ‘Can we build this card machine?’ and he said it would be a piece of cake. It was anything but a piece of cake.”

Putman said the card machine they designed went on to become the first such South African-developed device to be fully certified by International Card Schemes and PCI.

This was quite a remarkable achievement, considering they had only brought in two additional engineers, one of which was fresh out of university, to help his father.

However, there was little time to celebrate as the small iKhokha team were immediately thrown curve balls, the first being Apple switching to the Lightning connector in 2014.

As Android began to scale aggressively in South Africa, iKhokha adapted its hardware to plug into a headphone jack, which required digital-to-analogue (and analogue-to-digital) conversion.

Android’s open ecosystem added an additional challenge because every audio driver for the headphone jack was different across various manufacturers, making a universal device difficult to develop.

Putman said that any hardware design changes required going back to international labs for expensive and time-consuming recertification, adding immense complexity.

The controlled environment of certification labs also differed from real-life conditions, where factors like static, cold, heat, and physical handling could affect the hardware’s behaviour.

To overcome these hurdles and focus on its core competencies, they decided to scrap building their own hardware and instead partner with a third-party provider from Eastern Europe.

Putman explained that the hardware had become increasingly commoditised, with manufacturers in China building Bluetooth card machines.

This let them double down on distribution, customer journey innovation, and developing their software stack, eventually leading to good traction and improved customer retention.

“That took many years, and it was very painful. There were times where we literally had funding on a month-to-month basis and, depending how we did in a month, we would find out if we were able to make payroll,” said Putman.

He said that although it was very stressful, it was also “quite a romantic time” because they were a very small team of people all focused on trying to ensure the business survived.

“We all worked really hard to do that together and, against all odds, I guess, managed to get product-market fit right.”

Ten-year success story

Earlier this month, Nedbank announced that it entered into a binding agreement to acquire 100% of iKhokha in an all-cash deal for approximately R1.65 billion, subject to certain adjustments upon conclusion.

The acquisition will see iKhokha become a wholly owned subsidiary of Nedbank, while continuing to operate under its own brand and leadership team.

The transaction is subject to customary regulatory approvals and is expected to conclude in the coming months.

It also includes a comprehensive management lock-in to ensure managerial continuity and alignment with long-term growth objectives.

It also marked a successful exit for iKhokha’s long-standing investors, Apis Partners, Crossfin Holdings, and the International Finance Corporation.

Crossfin had backed the iKhokha founders from the initial concept in early 2012 to its expansion into offering a suite of accessible SME cash advance, payment, and business management tools.

“This is a proud moment for both the founders and the broader iKhokha leadership team,” Putman said.

“Joining forces with Nedbank gives us the platform to scale our impact, further accelerate product innovation, and unlock new value for our merchants.”

*This article was originally published by MyBroadband and has been republished with permission.