Paterson, Oliver du Toit and Sir Richard Branson with a branded Virgin train

Interview - Jeff Paterson

A new money-changing machine is set to make currency exchange for travellers a much more equitable and far less frustrating business. Co-founder of Fourex, Jeff Paterson, explains why.

There aren’t many certainties when it comes to international travel. Yet there is one thing you can be sure of: every time you perform a currency exchange transaction, somebody somewhere is extorting a sum of money from you that is completely disproportionate to the value of the exchange or the effort involved. In other words, ‘we’re getting ripped off’. This is a state of affairs that Jeff Paterson finds deeply unappealing.

However, while most of us do no more than simply bleat that life’s unfair, Paterson stepped up to the mark and did something about it. Not only did he do something about it, he impressed Richard Branson’s ‘Pitch to Rich’ judges to the point where his company, Fourex, became one of the 2015 winners. You now see advertisements for Fourex - a comparatively modest five-year-old start-up - on the side of Virgin trains.

While most interviews tend to take place in a swanky conference room in a modern office suite, my first encounter with Paterson is in the Circle Line ticket hall at King’s Cross St Pancras station on the London Underground. The reason for this is simply that “until you have seen this machine in action, it’s hard to grasp completely what it does”. I have a vague notion that I’m about to see some kind of beefed-up version of the Coinstar coin counting machine that relieves you of your ever-accumulating loose change in exchange for a what is essentially a cheque. Not so. I’d been warned that the Fourex kiosk was way beyond that. I took a bag of mixed currency with me to check it out. Five minutes later my Hong Kong dollars, Chilean pesos, US dollars and a handful of obscure African currencies had been transformed into a crisp ten-pound note and a handful of British coins that the machine kindly gave me the option of donating to charity.

“To be fair, the coin-counting machine is probably the closest thing to what we do,” says Paterson. Yet there is a big difference because until now “they would only take a single currency in exchange for a voucher. Now, if you add to that a currency exchange function you can start to see that we can do so much more.

“A bureau de change will only take the top 30 currencies, while the Fourex machine has a huge database that allows it to exchange pretty much anything you want to put into it, including out-of-circulation coins and pre-Euro currencies. And it’s quicker. If you want to change US dollars and euros into pounds, it would only take about a third of the time that it would once you reached the top of the queue at the bureau de change.”

Paterson is keen to point out that, critically from the point of view of the consumer, the Fourex machine is a much better deal. Historically, the odds have always been stacked in favour of the party selling the money, but that is about to be, if not completely overturned, at least taking a step or two towards equitability. “Our exchange rates are competitive because we’re not paying for staff to serve you. The rent we pay is for one or two square metres of floor space compared with 20 or 30 in an airport, which is probably the highest costing rental anywhere in the world.

“When we devised the concept of Fourex, we knew that it could only work if we could swing the pendulum back in favour of the consumer.” Coming from engineering backgrounds, neither Paterson nor his co-founder Oliver du Toit was initially a currency expert “but we did know that the biggest problems associated with exchange are hidden fees and commission. Of course, we do make money on every transaction, but we don’t hide any of the costs”.

The name of the machine has obvious roots in the term ‘foreign exchange’, but it is also derived from the fact that it serves four main functions. The first of these is simply to exchange foreign currency left over from your travels back into your home currency of pounds, euros or US dollars. “That’s what we call the cookie jar stuff - the bits and pieces that you don’t really know what to do with.” The second function is to act as a bureau de change, so that “someone arriving on Eurostar can change €500 into pounds at a far better exchange rate. Likewise you can exchange your pounds for euros if you’re going out of the country”.

The third component is the leftover small change that can be cashed up into larger sterling denominations, while the fourth caters for exchanging pre-euro currencies and out-of-circulation money. “There are several billion euros worth of Spanish pesetas, French francs, German marks out there. All those different currencies that aren’t exchangeable elsewhere. We can buy those from you. Of course, the central banks of some of these countries will still take these coins and notes, but for you there is no point travelling to Spain to change £10. For us, once we have accumulated £50,000 equivalent in Spanish pesetas, it’s worth the trip. That’s how we make money on that.”

Counting mixed-denomination, multi-currency coins is not as easy as it sounds. At a conservative estimate there are currently 100,000 options circulating the globe. “Of these, maybe 30,000 are worth something with the remainder worth next to nothing. There are probably around 10,000 coins that form the majority in circulation,” explains Paterson. “There are 13 different faces to a regular £1 coin. In the US a quarter from California doesn’t look like a quarter from New York, even in the same year. So it’s a huge job to collect images of all these coins to add them to our database.” Paterson reveals that the Fourex database currently recognises in the region of 30,000 coins and a further 3,000 notes.

Coins are introduced into the machine in what appears to be an almost identical procedure to the way we’ve always done it with single-currency coin-counting devices. They get fed in by hand and are separated out into a single line, which allows them to be pushed past a camera that takes photographs of each coin. The image is then compared to images in the database, with the coin under scrutiny having to satisfy four distinct recognition points. “This is what I like to describe as being the coin’s fingerprint. But it’s not just the image: we’re looking at other characteristics such as weight and size. All these things have got to match together because, as everyone knows, there are a hell of a lot of fake £1 coins in UK.

“The technology inside the machine has got to make the determination of what the coin is and whether to accept it in about a tenth of a second. Elsewhere in the system, the machine is working out how much the coin is worth.”

As a scientific discipline, the extraction and analysis of data from visual recognition systems is not new. However, it is developing at such a pace that installing multi-function, multi-currency, fully automated coin and note transaction machines in railway stations is now starting to make sense.

High-speed image recognition

“The tipping point for us was when we knew that we could analyse coin and note identities at high speed,” says Paterson. “Image recognition is all around us. If you walk through an airport, the people watching you know who you are. All this stuff is available now and the technology is there. The key is to do it at high speed. You need to look at a scenario where somebody walks up to one of these machines with a thousand coins of all different shapes and sizes. They want the money quickly and they don’t want the mechanical side of the machine to let them down. Actually, they don’t care about the mechanical side of machine, but I do. The mechanics of getting this variety of coins into a line prior to the visual analysis is incredibly complicated. The earlier coin-counting machines probably only had about four or five different coins to worry about. We’ve got 30,000.”

Supplementary to the mechanical and electronic systems that count the money, there is also a communications system, as each of the Fourex machines is Internet-connected to ensure that it is always working at the latest currency exchange rates. “They are connected on a permanent basis. What that means is that we can check and update our exchange rates around every four hours. It also allows us to view every transaction. If a customer has a problem, they can phone us and say something like: ‘look, I’ve put in a Swiss franc coin but the system thinks it’s a Botswana pula.’ We can then look at that transaction live and show the customer of the relevant imagery via the interface screen. We have the facility to say this is the coin or note that you have put in. We are also currently developing a system where we can actually talk to the customer live via a Skype-like application.”

The database is growing

Paterson says that the nature of hard money, as compared to virtual or electronic money, is that it physically changes over time, regularly and universally. There are always new coins coming onto the market and there are always old coins that no one seems to have heard of turning up in those ubiquitous cookie jars. This presents Fourex with one of its main challenges because, as Paterson admits “without a decent database, we don’t have a product. That’s been half the challenge - building the machine was easier than compiling the database.

“If someone comes up to one of our machines and introduces a coin that is not recognised by our database, then we will take an image from that coin as well as other proprietary data. We then search for that coin and upload the data if it is relevant, genuine and complies with all the other details we are looking for. If five or six coins are rejected and you come back in a week’s time, the chances are we will be able to take them. It’s a growing database; in a year’s time we will have everything.”

Patterson says that when he and du Toit came up with the idea for the Fourex machine, “we knew that we could build it. That wasn’t the problem. What we had to figure out was what to do with it”. The obvious response to which is, of course, to install a unit in every airport arrivals and departures lounge under the sun.

The obvious solution isn’t always the best and while Paterson was in the UK visiting family, the idea came to him like a thunderbolt. As a South African who has lived in Australia, the sheer density of people in London’s railway stations was an eye-opener. “I was on the Tube thinking that the number of people passing through the system was insane. I thought that if we could get our machines in here it would be like putting them at the centre of the universe. This is where everyone travels from.”

Paterson describes how he got on the phone to London Underground and Transport for London, “and they just loved the idea. Two crazy guys with a crazy idea. They said that if we could build it to their standards we were in with a shot. Everybody says to me that I should put these machines in an airport. But how many times does the average person go to an airport in a year? Once or twice? The people I’m looking to do business with go through the stations every day of their lives.”

These commuters will see the machines and eventually the penny will, quite literally, drop. “The commuters will figure out that it’s a lot better to get their holiday currency on the way to work the week before, rather than being ripped off at the airport. Everybody knows we’re being ripped off. With these machines you can buy Sterling, Euros or US dollars from any currency you like. You buy them directly; no double dipping - if you want to buy US dollars with Australian dollars, the currency doesn’t have to go through an intermediary phase of being converted first into pounds and then from pounds into your target currency.”

The two Fourex machines at King’s Cross currently represent half of the company’s market penetration. Patterson says that he won’t rest until he’s got 400 in strategic high-density commuter hotspots. If he succeeds, it will benefit every international traveller and our holiday money will go just that little bit further.

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