“Forty percent of Brazil’s population is entirely a cash-based economy, but the majority of them have a smartphone,” said Co-Founder and CEO of Airfox (and Brazil native) Victor Santos. “Even though they do not have a bank account, they can use their phone as a way to gain access to capital.”
Airfox is providing low-income, cash-based economies with access to financial services, and microloans through mobile devices. Their technology is divided into three distinct features: data science, mobile, and blockchain.
“We’re taking the concept of using your mobile phone as a wallet and transforming it to enable users to make payments on the blockchain,” said Santos. “As they are using the app, we start to gather data from the smartphone, and then say ‘Hey, you qualify for a microloan.’ From there, we will bucket the user based on their risk rating of either high, medium, or low.”
The company’s current target market is Brazil, and they have been working closely with the government regulatory agencies in the country to help bring a technological boost to their boleto payment system, which is the most common method of transaction for low-income neighborhoods in the country. Through the Airfox app, users fill out a boleto stamp and make deposits to their account, as opposed to filling out a piece of paper and standing in line at a local office.
Through their app, users can also pay their bills and manage their spending similar to any mobile banking app. However, the app is decentralized and utilizes the Ethereum blockchain to conduct transactions. It also adds an extra layer of security due to the blockchain’s encrypted nature.
Airfox is a company that is well-known within Boston tech’s blockchain sector and is the first venture-backed startup in Boston to successfully raise an Initial Coin Offering (ICO). While what the company is doing with its technology is intriguing, the story of how they came to be is equally impressive.
Get to know...Victor Santos, Co-Founder and CEO of Airfox
Santos was born in Brazil, and immigrated to the United States with his family when he was 12 years old. Growing up in a lower-income neighborhood helped plant the seeds of what his future career trajectory would be: focusing on social impact.
After graduating from UC Berkeley, Santos joined a company most techies would love to work for: Google. It was during his time here as a Product Marketing Manager that he came across a fellow employee who shared a similar vision.
“I met my co-founder Sara [Choi] when we first worked at Google, and found that we worked well together,” Santos said. “Both of us being immigrants from low-income demographics, we wanted to start companies that were going to be beneficial to a certain audience.”
Before founding Airfox with Choi, Santos had founded and ran Ciao Telecom, a telecommunications company that focused on providing inexpensive carrier solutions to businesses. While managing this company, Santos began to, as he put it, “notice the pain points of the carrier business,” and began to focus his efforts on a side project that eventually became Airfox.
Airfox’s original focus...and then pivot
The original business model for Airfox wasn’t focusing on personal finances. Instead, they were creating mobile airtime and data access specifically for families and individuals in low-income areas. Airfox’s software assisted in creating more affordable access to the Internet; for example, Airfox users could purchase an hour of Gmail or Facebook access.
“If you think about the Internet and your cell phone bill, it’s costly,” said Santos. “These folks are constantly turning away from their carriers because they are unable to pay their cell phone bill, and they are using their phones for their jobs.”
The company had sold mobile tools and software to low-priced, prepaid cell phone carriers in the US similar to MetroPCS and Cricket Wireless. While Airfox was successful in providing data to millions of users, Santos and his team had trouble scaling the software to other carriers, as sometimes the sales cycle would take too long. Around 2016, the team started looking into other ways they could restructure the company’s business model.
Airfox realized that mobile access and users not paying their cell phone carrier were symptoms of a larger disease: affordability and lack of capital access.
The team realized their core technology, which anonymously collects data points on users, could be revamped into a financial services app. Santos and his team realized that instead of using these massive data points to build tools for carriers, the real power was in using that data to create credit scores for individual users based on information from their smartphone, like GPS location data. The idea then began to evolve into what it is today, but they still needed a new technology backbone.
Luckily for them, the company's CTO, James Seibel, is a longtime developer and fan of blockchain technology.
“The [Ethereum] Blockchain was probably the last piece of our idea. James has been a big Ethereum guy since the early days,” said Santos. “I was new to blockchain, and he was telling us we could do this microcredit/microlending idea through the blockchain, because not only does it secure these transactions, but it would also allow us to raise and move capital more efficiently.”
Through a combination of being introduced to the blockchain, and taking into account what their technology can do, Airfox underwent a pivot.
Funding and what it’s like raising an ICO
The company was accepted into the Techstars program in 2016, and similar to many of companies that go through the cohort, they were introduced to several members and firms in Boston’s VC community. For Santos and his team, Katie Rae and her firm Project 11 showed interest, and they led Airfox’s $1.1M seed round in August 2016.
Fast forward a year, and the company got an idea to receive funds in order to further develop their growing business: an ICO. From June to October of 2017, Airfox began raising capital through an ICO and successfully raised $15 million.
“The ICO process was constantly evolving, it wasn’t a short period type of thing. It was also a very different space than what it is today,” the CEO said. “We were trailblazers in that regard,” he said. “We actually advise a lot of companies that are thinking about doing an ICO but only if it augments their existing offerings since as a sole fundraising it is not worth it.”
Santos’ predictions for Airfox and blockchain in Boston tech
Part of Santos’ entrepreneurial vision is to help bring social impact to underprivileged communities. Airfox certainly has the potential to fulfill that vision, and the company is eager to expand their services to other countries who are still predominantly using cash.
“We’re trying to bring financial services on the blockchain to billions of unbanked people around the world, starting with Brazil,” said Santos. “This is a huge problem worldwide, and blockchain is seen as a first use case for it.”
Since the company has become more involved with the blockchain scene in Boston, Santos has his own predictions of what is to come from it.
“We hope Boston becomes a hub for blockchain. It would be nice to have a company that can be seen as, in terms of name recognition, the ‘HubSpot for blockchain.’”
Images courtesy of Airfox.