In 1999 former Goldman Sachs investment banker Oki Matsumoto launched an online brokerage with some clear goals in mind: to create an ideal future for personal finance and to encourage Japanese who are hoarding their savings to actively invest.
The startup was called Monex, a name that was coined by replacing the y in money with x to emphasize its future, since x precedes y in the alphabet.
Some 19 years on, Matsumoto is still pursuing those goals, a mission that led him to make the surprising decision in April to buy Coincheck Inc., the troubled Tokyo cryptocurrency exchange that was robbed by hackers earlier this year.
“We believe we can create a new type of global cyberspace-comprehensive financial service company for global retail customers,” Matsumoto said in an interview last month.
The acquisition brought Monex Group Inc., Japan’s third-largest online brokerage in terms of accounts, together with one of the nation’s largest cryptocurrency exchanges.
With the industry in the middle of a “fintech” boom, Matsumoto believes companies with advanced financial technologies, such as the blockchain, will be essential for providing secure banking and payment services in the future.
These institutions will come up with new financial products based on the core technologies behind cryptocurrencies to widen the scope of retail investment options, he said.
In January, Coincheck shocked the world by announcing it had lost a staggering ¥58 billion worth of NEM, a virtual coin similar to bitcoin, to hackers. The young startup came under a slew of criticism as the record-breaking theft clouded its future.
Monex swooped in and bought Coincheck for ¥3.6 billion in a bold move that some observers said was too risky.
“The potential of cryptocurrencies and crypto-assets is really huge,” Matsumoto said at a news conference in April, brushing off the criticism.
“It’s possible to manage risks, but it’s no easy job to create a user base with the size and brand value Coincheck has established,” he said.
At the news conference, he mentioned his company aimed to become a “new type of comprehensive financial institution” and said Coincheck would surely play a key role in that vision.
Traditionally, financial institutions for retail clients are powerhouses like Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. that run banking, brokerage and credit card businesses all under the same roof.
But Matsumoto envisions a new type of entity that will offer online cryptocurrency banking and brokerage services. It will be basically the same as a traditional bank but based on cryptocurrencies instead, he said.
Despite their volatility, cryptocurrencies have seen enough growth that they can no longer be ignored, so Matsumoto believes they will begin to enter people’s daily lives more and more, creating demand for related banking and payment services. But he also concedes that the major brands, including bitcoin, are too volatile to be used.
“Probably in the near future, a less volatile or nonvolatile crypto will be invented that will be more suitable for payment,” he said, adding that virtual money could greatly improve the convenience of daily transactions.
For example, wiring money overseas could become easier and cheaper than using regular banks and perhaps eliminate visits to bank branches and the several thousand yen in fees they charge for each transfer. Doing this through a bitcoin exchange, in contrast, costs just a few hundred yen.
On the other hand, many people are skeptical about how cryptocurrencies will develop, so it will likely take time for them to spread to the investing public, much less replace fiat currencies.
Matsumoto said the tax system is one potential barrier.
Under current tax law, anyone earning ¥200,000 or more from cryptocurrency trading in a year must have that profit counted as miscellaneous income. Japan’s seven tax brackets start with a levy of 5 percent and top out at 45 percent for those earning more than ¥40 million a year. One’s income is also subject to a residential tax of 10 percent. Together, the maximum tax rate adds up to 55 percent, which Matsumoto says is too high.
“The nation should seriously think about how it treats cryptocurrencies, not only from a regulation point of view, but also a tax treatment point of view,” he said.
To facilitate their spread, Monex and Coincheck can speed up the process by getting their distinctly different customer bases on the same page, Matsumoto said. Both have about 1.7 million customers each, but a lot of Coincheck users are millennials unfamiliar with investment, whereas Monex has older customers who are familiar with investment but ignorant about cryptocurrencies.
“If there is a customer at Coincheck who owned bitcoins from the early days and made a fortune, we can say, ‘Are you going to hold all your wealth in cryptocurrency?’” Matsumoto said.
Since keeping all of your money in one kind of asset can be risky, Monex can teach Coincheck clients about diversification by introducing them to bonds and exchange-traded funds, for example.
Encouraging people to take more interest in investing to change the flow of money has been a priority for Matsumoto ever since he founded Monex, then backed by Sony Corp., when he was 35.
Matsumoto believed that the piled-up savings held by many Japanese was problematic because people seemed indifferent to how their money was used by the banks, which were basically buying up most of the government’s bonds, contributing to the snowballing public debt.
So Matsumoto set up the online brokerage to give them more choices, taking advantage of emerging technologies. At the same time, deregulation hit Japan’s financial industry, putting an end to fixed commissions for stock purchases.
Monex has provided some unprecedented services. In a world first, clients could invest in video game titles and get a return on their sales. In 2009 it launched an AI-powered fund that used the technology to process and analyze vast amounts of data.
Matsumoto said Monex has done a lot to change how people invest and use their money, but he also said that the mindset of the Japanese hasn’t changed very much because more than half of their money remains in cash or savings. He says many Japanese are indifferent about investment partly because no one really teaches them about it at school or in their daily lives. Also, the fact that the government encouraged people to increase their savings after the war to secure funds for economic growth locked them into this way of thinking.
“It’s like chasing a mirage,” Matsumoto said.
“People’s mindsets are always changing, so however we change, customers, environments, technologies and societies, they are moving as well,” he said.
For now, with cryptocurrencies gaining momentum, the immediate priority is to reform Coincheck to improve its governance, internal control and cybersecurity. And this is where he feels Monex can offer a helping hand with its 19 years of experience.
In April last year, cryptocurrency exchanges became legally obligated to register with the government. Exchanges that were already up and running before then — including Coincheck — have been allowed to continue on a tentative basis.
Matsumoto, who is on Coincheck’s board, said the startup has seen great improvement and hopes to win government approval soon. That will be the first step toward forming the new type of financial institution he envisions.
He refrained from giving details on new services it might offer but said it could experiment with products like blockchain-based funds that he thinks will generate interest in investment.
The blockchain technology links people’s computers directly, bypassing the need for a central server, and records each transaction from the beginning. These transactions are simultaneously monitored, making data falsification effectively impossible. The technology is often seen as an innovation due to its immunity from data falsification and traceability.
It is theoretically possible, for example, to make a blockchain-based fund that collects votes from investors and moves on an investment only when the majority agrees, he said.
“There are merits and demerits with this, but by pursuing such possibilities and keeping up efforts to improve services, I think we can accelerate the momentum to liberalize capital markets and give people more initiative to make their own decisions about how they want to spend their money,” Matsumoto said.