Via Varejo, the largest retailer in Brazil, is set to acquire Boston-based fintech startup AirFox for an undisclosed sum.
AirFox will keep its Boston headquarters and serve as a "fintech innovation hub," according to a statement released Friday. The goal is to leverage Via Varejo's infrastructure to make financial services accessible to unbanked and underbanked Latin Americans.
Founded in 2016, AirFox was launched by CEO Victor Santos and Sara Choi, a pair of ex-Googlers who came to the East Coast to participate in Techstars Boston and never left. The startup was originally designed to provide mobile services to low-income users in the telco space, Santos told BostInno. But a year later, the startup pivoted to build a digital wallet instead.
By late 2017, AirFox had fleshed out plans to launch its own cryptocurrency as a way to help low-income individuals redeem mobile data for their smartphones, as well as give out microloans, especially to those who don’t have easy access to financial services.
"We realized our customers needed more than just what we were serving," Santos said. "We were essentially a vitamin and not a true solution to the problem, which was access to capital."
AirFox has historically looked to help unbanked or underbanked prepaid smartphone users. That initiative started in the U.S., but AirFox announced plans to expand to Latin America early on. In Brazil, Santos’ home country and Via Varejo's base, more than 40 percent of the population is unbanked, largely because banking is extremely expensive, Santos said, calling banking fees a "poor tax."
Evidently aware of the problem, Brazil's central bank recently invited innovators in the fintech space to come and disrupt that market. That created AirFox's first opportunity.
"The regulatory changes made Brazil a prime market to grow in," Santos said.
Around the same time, Santos was working with Jeffrey Bussgang at Harvard Business School on a case study about AirFox's pivot to cryptocurrency. Meanwhile, a high-level employee with Via Varejo happened to be at Harvard as well, doing a management program.
"He saw my case, and we connected in Boston," Santos said. "It was super serendipitous."
That was in early 2018. The two companies entered into a strategic partnership: Via Varejo invested in AirFox, and the two began collaborating on a free mobile banking solution. The idea was to turn Via Varejo's massive credit portfolio—about $1 billion worth of retailer loans the company carried on its books, Santos said—into a digital platform. At the same time, the Brazilian retail giant saw an opportunity to build a banking platform that was agnostic of its stores.
Later that year, AirFox and Via Varejo released "banQi." It's a free mobile banking app that extends transaction capabilities and access to banking services through thousands of Via Varejo retail locations. Customers can use the app to buy goods, pay bills, top up cell phones, recharge public transit cards and more.
As it happens, the coronavirus has led to a significant spike in banQi's usage. Via Varejo financial director Andre Calabro said in a statement that Q1 2020 saw a 100 percent increase in new banQi accounts, a 300 percent increase in use of bill payments and a 117 percent increase in in-store loans.
banQi was also recently a finalist for an Innovation Award in SXSW's New Economy category, although the festival was ultimately canceled due to the coronavirus.
The road from strategic partnership to acquisition was a short one. In 2019, Via Varejo experienced a change in ownership: Brazilian retail veteran Michael Klein and his family gained control of the company from GPA SA, a subsidiary of France’s Casino Guichard Perrachon SA.
By early 2020, Klein had assessed the company's operations enough to decide it was time to approach AirFox about an acquisition.
"It was better to bring us in-house and keep us as a subsidiary, have us closer to them," Santos said.
As part of the transaction, Santos' role will transition from AirFox's CEO to its chief strategy officer, spearheading product, corporate strategy and engineering. All AirFox product managers will report to him. Calabro will become the CEO of AirFox and banQi. Although there will be some corporate reshuffling, Via Varejo will retain the Boston team, which Santos said was "part of the big appeal" of the acquisition.
AirFox is now hiring aggressively in Boston, including for a senior software engineer, a DevOps engineer and a principal software architect.
"They see the innovation, using AirFox not only as the banking app we have, but also as the talent we have in Boston," Santos said. "I think it shows the strength of the Boston ecosystem. ... Maybe we can be a well-known case of success for consumer tech companies here."
