Disruption is an over-used word. But in the eyes of the man who invested its theory, Harvard Professor Clayton Christensen, it is where a rare and new innovation comes into an existing industry to change the market and create new revenue streams. South Africans Jeff Paterson and Oliver du Toit have one of these unicorns. Their invention, an ATM-like box accepts and distributes notes and coins, is reshaping worldwide foreign exchange. They’ve kicked off in London where every day, hundreds of the locals swap foreign notes and coins at the handful of their Fourex machines spotted around a few underground stations. I visited the one at Blackfriars for a personal demonstration and immediately made a note to bring that bag of previously useless coins accumulated through decades of travelling. Better still, the Fourex machine also converts all those old foreign notes that the bank rejected – like my pre-euro Deutsch Marks and old Singaporean Dollars. Our chat that followed the demo chronicles one of the most fascinating tales of entrepreneurship I’ve come across. And given Paterson’s enthusiasm and the strong financial backing this revolutionary business now enjoys, soon there will hundreds, perhaps thousands of the machines around the world. In this inspiring interview, Patterson also gives credit to the very deep South African connection – his own Johannesburg upbringing; how support by Radio 702’s John Robbie and his listeners was the game changer in the UK’s high profile “£1m Pitch to Rich” competition which Fourex won. And how that win and the subsequent endorsement from Virgin’s Richard Branson, turned the world into their oyster. It’s a tale of perseverance and resilience by two Johannesburg boys who never knew when to throw in the towel – and are revolutionising the way we deal with currency – one foreign coin at a time. – Alec Hogg
I’m here with Jeff Paterson having just seen the Fourex Machine. He’s the cofounder of this company. You’re from Joburg originally?
I’m from Joburg; I went to Sandringham High School, grew up and lived in Joburg all my life until I was about 40.
Were you entrepreneurial over there?
I think I was. I was never actually employed by anybody ever. I always had my own little businesses, whether it was a building business or a catering business but I always did my own thing.
What was your very first business?
It was always working in restaurants from the time I was probably about 13 at the Dolls House (a roadhouse on Louis Botha Avenue in Johannesburg) and did that from a very early age. I used to work in the Spur, I used to do all sorts of stuff, yes.
The sooner you start in business, the more of an advantage you have and clearly you’ve taken all those learnings and you’ve applied it. Where did the idea of this machine come from?
Oliver and I were living in the Middle East, we had a construction company there where it was the boom in the Middle East in Abu Dhabi, we saw an opportunity, and we started a project management company and we were doing small to medium projects for the government. One day I was moving home and I pulled out my drawer and I must have had a barrel load of coins and a bucket of notes, which I thought well, might as well change this out because it’s got to be worth a few hundred Pounds.
I went to go change it and the Bureau de Change would only exchange about a third of it. The coins they weren’t interested in and the exotics and low value notes they wanted to charge me such exorbitant rates on and a fee that it was worth less than the actual notes, so this is when the idea clicked and Oliver and I sat in our office one day and thought well, if we could come up with a way of exchanging the last couple of Dollars from everybody as they went through a hotel coming home, going somewhere we’d be onto something massive because there’s about a billion people travelling around the world every single year.
You’ve mentioned your partner, when did you guys get together?
Oliver actually employed me when I first moved over to Abu Dhabi, I had just split up from my first wife and moved to Abu Dhabi and Oliver was my boss at Etihad Airways, where he was building their offices. We lasted there about a year because neither of us is very corporate and we couldn’t stand the bureaucracy that went through six months to buy a brick, so we went out on our own and we very successfully ran a construction business over there alongside this.
How long did it take you to work out the technology because clearly many people have lots of coins sitting in their drawers at home that they haven’t been able to convert and I’m sure there have been many attempts at this before?
This was the barrier to market. When we first looked at it, we weren’t going to do a note machine. It was purely a coin machine we wanted to do. We looked in the market for anything off the shelf that we could buy and maybe convert and there’s nothing. There’s only coin sorting machines that can identify one or two currencies and within that six or seven coins. What they do is they use inductants, so when the coin goes past a sensor it picks up the composition of the metal and it knows what it is, everything else is rejected. When we started looking into it, we looked at, for example, American coins. A quarter in America from 1980, from Alabama is not the same as a quarter from New York State from 1980. They all have different images on and every two or three years they change the picture on the coins, so it’s not the same coin, it’s a different coin.
Just for American coins there’s probably several hundred quarters only. There’s about 60 000 separate coins in the world worth something, so we knew we had to start again and the only thing that we figured could work was image recognition where we would actually take the photograph and instead of using it from the metallic value we’d take it from an image value and that took about four years to develop. It took us about a year to figure out that we could actually do it and once we knew we could do it the problem was doing it fast enough because a customer doesn’t want to sit there for 20 minutes with a small job. He wants to put 300 coins in and within a minute they process it, so that was the key, was getting it accurate, and fast enough to be able to do that.
The tech, where did you source that?
We work with a couple of very smart American guys that we teamed up with, who are software experts. Together with them it took us about five years to develop that technology.
That’s one thing to have the product but then to take it to the next step. All of the time, clearly you guys were putting money into it, was it being funded by your construction company?
It was. We’d work in the day to build stuff and in our spare time at night and on weekends we’d develop this. For the first two years Oliver and I, between us we were on a flight every two days. At least one of us was flying either to the States or to learn about coins or to collect coins that we needed to process to add to the database and that was probably the hardest thing we had to do because we had to physically collect all those coins so as to process them so that they would work under our imaging. We couldn’t take an image from the internet and say okay well that’s a quarter from Alabama, we had to get a hundred quarters from Alabama from 1940 because some of them are worn, some of them are bent, some of them are old, some of them are shiny, so we had to take an average of those coins, so it wasn’t 30 000 coins it was about 3-million coins we had to collect and put through the database.
Is that why no one else has done this, because the PT is just so heavy?
It’s too hard. We always look back and we say there’s no way, and that’s only one aspect of it. I mean the coin technology is such a small part of this whole thing. Then there’s the bank note technology where there’s several thousand bank notes in circulation and you have to have all that, security features because one shouldn’t be able to accept a counterfeit note because there’s so much risk in that. There’s that and then there’s the whole point of putting it all together so that, that bank note is worth today so many Euros or whatever and it’s the backend and the integration into a box that’s only a square metre. So you’re taking what a Bureau de Change does here with a 50 square metre shop, they put five people in it. We do exactly the same but we do it within one square meter with no staff.
You say here, this here is London and we’re sitting here on a beautiful sunny day in London. I don’t know why the Brits complain about the weather because it’s not always bad. How did you break into this market though? It is pretty closed in many ways and we’ve just been at the Blackfriars Railway Station, the tube station where your machine was being used, not just by yourself but by customers as well. How did you get in there?
Our first idea was to go and put this into airports but the monopoly and the cost of putting anything into an airport is extravagant, so the big companies or corporations, money exchange companies, they pay millions and millions to have the rights to sell currency in those. We can’t afford to do that, so we’ve tried to think outside the box, when you come home from a trip you only have a couple of coins and a note or two, but most people take that home and they’ll put that into a jar. What we figured is if we could get people on their way or on the way home from work because they go to work every single day. They only go through the airports once or twice a year but they’re going to work every single day, if we could get them at the train station and solve that problem at a fantastic exchange rate, people would use us once a year.
We approached Transport for London about three years ago and they absolutely loved the idea. There was no vending whatsoever in London Underground but there was a new retail team who had taken over and they were looking for innovation. Boris Johnson, the Mayor of London had tasked them to find innovative products to raise some money, additional funding in their space and they loved it. We were a start-up, we didn’t have a machine yet, we simply had an idea and they said, “Look if you can build this thing to this specification and it can do what you said it can do we’ll humour you and we’ll put a couple in and trial them”, so that was an absolute breakthrough for us because there’s over a billion people going through London Underground, there’s no better place.
It took us about another year and a half to build the machine and we brought them over once we had a prototype and we did a demo for them and they absolutely loved it. They gave us a contract to put four machines in, which we’ve done. We’ve put a couple into King’s Cross, we have one in Blackfriars and another one going into London Bridge and since we’ve put it in December last year we’ve done over 50 000 transactions in six months through four machines.
Jeff Paterson and Oliver du Toit are the two South African innovators behind Fourex, a self-service machine that… https://t.co/wg8dWlvCFE
— risingafrica.org (@risingafricaorg) May 23, 2016
How many customers, so it’s 50 000 customers, have gone through.
Yes.
How much turnover would that translate into?
I don’t have the figures on me but it’s a lot of money. Look some people will exchange 20 pence, there’s no minimum as long as it can register up to one or two pennies, the machine will pay you one or two pennies, some people will do £500, £600, it all depends. What we’ve tried to do is we’ve tried to remove all the limitations, so if you walk up to a Bureau de Change and say, “I want to change a dollar” they’re not interested are they? They’ll turn you away or they’ll charge you a fee. With our machine you can take 20 cents or five cents and you can change it into a different currency if you want, there are no restrictions. We’ve removed all the barriers to market for the customer.
What do you do though with all these coins once you have them?
The majority of them are currencies that we can re-use, for example we pay out Euros, Dollars, and Pounds so we use those back in the machines. Then what we do with the other ones is we store them up for long enough that it warrants the cost to ship them back, so for Australia we need about a ton to make it viable for us to sell, but we set our exchange rates in accordance to that, so the coins exchange rate and the notes exchange rate is slightly different and that’s to accommodate the cost of getting a ton of coins back to Australia and back again and that’s what we do with that.
The Australian Reserve Bank buys them back for you?
Or dealers in Australia, so we work with security companies like G4S etcetera who change it through their centres.
Jeff you must have found some pretty rare coins as well. Maybe it’s early days but there might be some coins, like when, again getting back to Buffett, one of the jobs he did was he walked around a Tattersall’s or a Tote and he would pick up the losing tickets because amongst the losing tickets were some winning ones which were converted obviously into cash. Might there be that opportunity too? How are you structuring for it?
I think there are but our model has always been on face value. If you understood the volume of coins that we are putting through only four machines, we’re trying to get 500 machines out across London within the next two years. We simply will not have the time to scratch through for rare coins. The idea is, give the customer a solution and turn that into a business, a logistical business of how to get that back to wherever we’ve got to get it back to.
One of the coin collectors wherever they might be will know or will have an opportunity to take advantage of that perhaps. You said 500 machines. Now that’s a pretty smart machine that you’ve got already, what does each one cost and how are you going to fund this expansion?
Each machine in the tens of thousands of Pounds because there’s a lot of technology in there. As we grow we hope to bring those costs down. We’ve recently taken on second round funding from a South African growth fund and entrepreneur and that will get us enough machines to grow across and then we’ll be self-funding within the next year. So the machines will fund themselves within the next year.
Tell us a little bit about that, the first and second round, because many entrepreneurs see funding as the biggest problem.
Well that was absolutely our biggest problem because we had the technology, we had the contract, we had the idea and everybody loved it but nobody loved it enough to put several million Pounds into a couple of guys who wanted to change coins. They all said, “Look I get it but how do you make your money?” We literally, Oliver and I funded this all the way through for the first four years until we had literally no more money. We’d run out of money, we had stopped the construction company because we had moved over here, so what we decided to do was crowdfund and in January of 2015 we went to the market and we tried to raise £270 000. We couldn’t get one or two angel investors to invest £500 000 and we would have given away a lot of the funding at that time but we could get 430 investors to invest £1000 each and we ended up raising £67 000 in a record-breaking crowdfunding round in only ten days.
Did you show them your machine, could you at that stage?
We showed them a video, so we couldn’t show the machine. We had a video but we also had demo days for people who wanted to come down and they could have a look.
What platform?
It was Crowdcube in the UK and I can honestly really recommend it because where the traditional funding, I mean the banks, wouldn’t even look at us never mind the angel investors. Quite funnily enough I had a guy that we tried to pitch to just before they had phoned me up the other day to see if we still wanted to get investment, so it’s funny how the wheel turns and a bit of success brings the investors back, but the crowdfunding platform was fantastic for us.
What kind of a premium would you be demanding now on what the crowdfunding, those 400 people bought in at?
Look, it’s difficult for me to value us at the moment but it would be substantially more than what they bought in, less than 18 months later.
Come on Jeff, you’ve got to give us an idea because I’m sure if I’m Bidvest looking at the backend that they’ve got with Bidvest Bank, this could put them out of business and that’s just a small South African example. There would many other Bureaus de Change who would either want to buy you to put you out or they would like to partner with you. Are you talking tens of millions of Pounds?
At least; when we raised at Crowdcube we raised £4mn which in South African terms, that’s a lot of money; over here that’s not a lot of money. Subsequent to that we’ve just taken on a second round investment and I can’t disclose the numbers on that but we have South African investors which was fantastic for us. We have Genesis Capital, I don’t know if you know who they are and a very successful entrepreneur, who has also invested in us who is actually very involved in the business and mentors and advises us on a lot of stuff.
But you’ve retained control.
Eventually it’ll be equal control, so we wanted to do that, that everybody has an equal say in it but Oliver and I will have equal control to the investment.
You also accept the notes that are not accepted at the moment by the Bureau de Change. How does that work because certainly with the feedback that I’ve had they say that the notes are now out of circulation like Deutsche Marks, how do you get value for that?
We figure that if a customer’s going to come up to the machine we don’t want to turn him away and leave him with half a solution, so we wanted the whole solution. At the moment the Bureau de Change will take about 30 to 40 currencies. For example, if you went up there with Botswana Pula, for example, they don’t want to know, especially in the UK, they will turn you away, so why would they do that when there’s an exchange business to be done there, so we do that.
We also looked at the out of circulation pre-European currency which we believe, there’s about 50-billion notes still in circulation of Deutsch Marks, Spanish Pesos, that are just lying in people’s homes across Europe, so we added these to the database and we accept them. What we do with them is we take them back to the central bank of that country and we can still exchange them at a rate, so everybody wins, we offer a solution and we’ve found value in that.
It’s an extraordinary story. Are you likely to take it to the stock market at some point?
I’m not sure. This is the kind of business that I don’t think you ever sell because you’re always generating money. The bigger picture here is not London. The idea that we have is that the same machine can work in Saudi Arabia, it can work in Australia, it can work in South Africa with a change of language, a change of power currency and it all gets integrated by the South African Rand so we buy in the UK in coins that can be sold back to the South African franchisee or branch, likewise the UK Pounds can be traded with each other. This is not really the kind of business that you ever want to sell.
You’re adding value to things that people at the moment can get no value from.
Absolutely, so that jar of coins that’s sitting in your home wherever you are in the world, there’s almost no value to it, we’re stimulating the economy in such a way, the idea is to have over 2000 machines across the UK. Imagine what they could do to the economy? You’re turning that sort of dead money into something.
What’s going to stop you, what’s the risk?
There’s so much risk but I think we’ve gone past the point of risk. It was risky two years ago when we were running out of money but we want to move really quickly. We need to move quickly. Someone’s going to see this and say, well that’s a great idea, and how do I do that. We’re putting patents in place and there’s a huge barrier to market because it’s very difficult to achieve what we’ve done. It’s not like an app where you can say okay, I can do an app like Uber, you have to put a lot of work into this to get it to where we have. I think it’s just speed to market because the barrier to market will be, you know, first mover advantage is very important in this. Anybody coming behind us is going to take five years to develop this so that’s our target, is to move as quickly as possible.
It’s also interesting to notice that you give the option to people changing their coins or their notes to make a donation to a charity. What brought that to mind?
That was very important for us because let’s say you had a jar of coins that was worth£72.20, we figured that if somebody wanted to not walk away with some coins they could donate the£2.20 to a charity and they could split it between all the six charities that we’ve got or they could donate the whole lot because a lot of people want to do that, so we’ve given them the option. You can donate part or all and we’ve managed to partner with some fantastic charities.
We have UNICEF, Railway Children, and Guide Dogs for the Blind, UK Stroke Association. We tried to do a little bit of everything and it’s amazing how many people actually donate. What’s amazing is we’ve just signed Virgin Unite as our seventh global charity and that was important for us because when we won Pitch to Rich last year, it was one of the questions that Richard Branson asked us in the pitch. He said “I love the idea, but I’m worried that…” you know people donate on his aeroplanes and he’s worried that this would take away from that and I explained to him what we were going to do with it and he absolutely loved it and it’s important for us to give back and we’ve just started a relationship with Virgin Unite and we’re going to fund entrepreneurs in South Africa through this machine.
Pitch to Rich and Richard Branson, anyone who’s flown Virgin knows exactly what you’re talking about, but they ask you for coins before you leave the aircraft, so clearly he must be worried. That would have been a disincentive for them if he had any say in the matter to award you this very prestigious award. How did you first of all find out about it and secondly, what was the competition like?
After we did the crowdfunding we got some really good press because we crowdfunded in a record time and the timing was just strange. I saw this competition on LinkedIn, I had never heard about it, so I thought, look we’ve just got some great press, we have a couple of investors interested in us, so we entered it. There were 2 700 companies that entered and we slowly started moving up the ranks. To get votes what we did is I phoned 702 up and I pitched the idea and I said, “Look there, we have a couple of South Africans, we have to get votes to get through to the next section, would you be interested in featuring us on the radio” and John Robbie came back and said, “Absolutely love this idea, will you come on the radio?”
#SouthAfrican #entrepreneurs Jeff Paterson & Oliver Du Toit win Pitch to Rich 2015: http://t.co/0s2ibKYooV #Forex
— Annie ✈ ❤ ✈ (@26DegreesSouth) June 27, 2015
So “Of course I’ll come on the radio”, so we went on the radio and within a space of an hour we got a thousand votes so it was a whole lot of South Africans who heard about it and John was amazing. Two days later he said, “Okay, so can we have you on again, see how you’re going?” I think he had us on three or four times and then that got us through to the final top 50 and from there on in it was up to us and the business to get through. We got to the top ten, pitched to Richard and a panel of other entrepreneurs and ended up walking away as winners. It was just an absolute breakthrough for us.
Apart from the publicity, what also went with the award?
It’s about £1mn in prizes. Our share of that was about £250 000 in cash and incentives through Virgin but that is not the biggest prize because the awareness of our product and the exposure through the media that we got from that, having Richard Branson Tweet what a great company, Fourex is worth its weight in gold and he’s done it a couple of times. The support we’ve had from Virgin has been unbelievable and put us on a different level. We still get emails every single day saying “I’ve seen you, I’ve heard about you, are you interested in franchising?” To create a branding incentive like that costs millions and millions and we got that for free through Virgin.
Jeff, it’s been an incredible journey. As you can hear in the background, the London guys have also got their traffic cops with sirens, what’s next for you and your partner Oliver, how big is your company now and how big do you think it could get?
We have massive plans, so we are talking to a couple of ferry companies, we’re talking to supermarket chains in the UK who are interested in taking it across the whole UK, and so that’s 500 stores each. We’re trying to get it across London through London Underground. London Underground has about 270 stations. We’re trying to get a machine into every station across the UK and into train stations. Next year and the year after we’ll focus on franchising and expanding across Europe and the Far East and that’s the bigger picture for us, is to grow this worldwide.
Along the journey you’ve had your tough times; you had to spend a lot of time as you told us earlier, investing. Did you ever lose hope?
Oliver and I never gave up. We always joke we knocked on a thousand doors to get investment because we did, we pitched to a thousand investors, but we never ever, we always knew we had something amazing and it was only once we had won Pitch to Rich that people actually said, “Well actually that is a great idea” and once we had a machine out in the field. Remember, it’s amazing for me to sit and watch people four, five deep queuing to use our machine, and walking away saying, “That is just the most amazing piece of kit I’ve ever seen” and that for me is just the most amazing thing.
So young entrepreneurs sitting in South Africa looking at another South African who’s come to the big city and is breaking open the world market, what would you say to them, what advice could you give them?
I don’t think there are any mistakes. Oliver and I have always joke, we’ve made a lot of mistakes in our lives and I’ve had great businesses, I’ve had bad businesses but I don’t think there’s any mistakes that you can make. You can always, if you don’t learn, you try stuff and learn from the mistakes you make, you may not be building the biggest business in the world but whatever business you’re doing you’re always learning and you’re always growing. Don’t ever give up what you’re doing. If you have an idea it takes a whole lot of hard work and if you follow that through you can be successful and it can grow and it doesn’t have to be a massive business but don’t give up. This is fantastic to be an entrepreneur now.
Don’t sell out.
Don’t sell out.
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