Michio Matsui, president of Matsui Securities Co., seems no match for Japan's financial juggernauts. He commands a $30 million second-tier brokerage with no branches, and a staff of merely 200 that works in a back-alley office on the edge of Tokyo's financial district. Yet Matsui has been stealing business from Japan's traditional, stodgy brokers by transforming his company into an online discount brokerage.
Matsui's bargain-basement fees--now $9.50 a trade--have drawn 27,000 clients since the company launched online service in 1998. That's less than 5% of all online accounts today. Even so, the total value of the company's trades regularly beats that of all other cyberbrokers in Japan. In February alone, Matsui Securities handled about 377,000 orders worth $2.23 billion. Matsui says his company's online trades will soon rival those of Japan's brick-and-mortar brokers. In the next year or so, Matsui hopes to have 200,000 customers and handle about $76 billion annually. "That's about the same scale of trades carried out by [Japan's No. 5 broker] Kokusai Securities Co.," says Matsui.
Japan's big-name brokers are taking boasts like that seriously. These days the Tokyo stock exchange is booming--its Nikkei benchmark index closed at a four-year high on Apr. 3. Individual investors made nearly 29% of all trades on the exchange last year, vs. less than 15% in 1998. And in the past seven months alone, the number of online accounts in Japan has more than doubled to 761,000 (chart); there are already about 50 online brokers. Of course, these numbers still don't compare to the U.S., where 100 online brokers handle an estimated 7.3 million accounts for 4.4 million people. However, Daiwa Institute of Research, Ltd. forecasts that the number of Japanese with online accounts will more than double again--to some 2 million--by the end of this year.
BIG BOASTS. Every brokerage with a reputation offers online trading now. But the competition is brutal. Even major players such as Nomura Securities Co. and Daiwa Securities Co. are being forced to consider reducing their online fees. But that may not be enough to turn the tide. While many investors are opening accounts at traditional brokerages--and using the research provided--they are actually doing their trades with smaller discount traders like Matsui, simply because the upstarts are cheaper.
Consider the experience of Yukibumi Yamamoto, 37, a salesman for Sony Life Insurance Co. He has had an account with Daiwa for years, but he now trades through a discount broker called Monex Inc.--partly owned by Sony Corp.--and does so with as much as $5,700 every two months.
Daiwa isn't giving up on its Yamamotos yet, however. It plans to invest as much as $1.5 billion to improve its online trading infrastructure over the next three years by hiring more support staff and upgrading its computers to process orders more quickly. The big brokers are also trying to attract new investors. To grab twenty- or thirtysomething neophytes, Daiwa has been offering wireless stock market trading services through cellular phones. Nomura is joining forces with Sega Enterprises Ltd. to offer online trading via Sega's Dreamcast electronic-game consoles. "This is the market segment securities firms should target," observes Nina S. Young, a research associate at Jupiter Communications Inc. in New York, who follows Japanese online traders. Unlike retail investors who got badly burned when Tokyo's Nikkei index started to head south in 1990, "the younger population has not been as affected by financial woes."
Companies such as Monex are also targeting the next generation. Like Matsui, Monex is offering cut rates of $9.50 per trade. But it's encouraging first-timers to invest by providing extensive trading information on stocks and new listings. Since many Matsui traders are experienced, frequent traders, Monex estimates that the average size of a ticket for Matsui is $20,000. A typical order for Monex is only $8,000. But with 33 million more people expected to start using the Internet from home over the next four years in Japan, Monex is convinced it should continue to focus on novices. "Individuals will move their financial assets into stocks and mutual funds as happened in the U.S. in the 1970s," says Oki Matsumoto, president and CEO of Monex Inc.
Western electronic brokers are quickly gaining ground in Japan, too. Charles Schwab, TD Waterhouse Group, and DLJdirect SFG Securities in Japan have all established offices on their own, while E*trade Securities Inc. has joined with Softbank Corp. Since it began to offer cybertrading in June, DLJdirect has managed to corner roughly 6% of online accounts, making it No. 6 in the Japanese market. And the company has barely started to show its stuff. To attract elderly clients, DLJdirect will soon introduce an entirely new service: a system that will enable clients to place orders by speaking to their computers.
BACK TO THE FUTURE. Matsui is undaunted by the exploding competition. He believes that only a few of Japan's online brokers will survive--the ones who can control their costs. Luckily for his company, Matsui has had some experience with this. His first job out of college was to slash costs brutally at Nippon Yusen K.K., one of Japan's oldest shipping companies. As a director of Matsui Securities in 1993, he trimmed the company's overhead by shutting down all six branches and only accepting stock orders over the telephone. Then he doggedly helped investors cut corners and avoid red tape. Even though trading commissions were fixed, for example, he competed with large brokers by taking advantage of loopholes to cut back on fees for things like stock maintenance. Says Matsui: "In a sense, what's happening now in the brokerage industry is back to the future for me."
He's also setting out a whole new banquet of services. He has just started to offer traders a small electronic "ID mouse" that can verify a trader's identity from his or her fingerprints, eliminating the need for passwords. But his greatest longing is for Matsui Securities to become a financial cybermall, selling everything from stocks to investment trusts to life insurance. "Online trading will not even exist in four years anyway," he reasons. People will be trading over electronic-communication networks that will automatically match buyers and sellers, cutting out brokers altogether. By then, Matsui plans to reinvent his company all over again.
It's a radical view. And Matsui could be dead wrong. But, even so, the chances are that he'll upset the established order once again.