A centuries-old Japanese tradition of stamping documents with seals in place of signatures is finally waning, as more people have been working from home due to the coronavirus pandemic. Corporate giants like Toyota and Nomura are signing up for the electronic signature services of a little-known company called Bengo4.com Inc., which has sent its stock soaring 100% this year.
The share-price surge made Bengo4’s founder, Taichiro Motoe, a billionaire largely based on his stake in the Tokyo-listed company he founded 15 years ago. Forbes estimates Motoe’s net worth at just over $1 billion.
Investors are optimistic about Bengo4’s e-signature service, called CloudSign, in the Covid-19 era. As more people work remotely, Japanese companies are switching to e-signatures from physical stamps called hanko to authenticate documents—a practice Japan followed since at least the 1800s. “CloudSign is changing the traditional hanko culture,” says Motoe on September 17, in his first interview with international media.
“I had to put stamps on a huge pile of contracts one by one. I felt such inefficiency in the business culture.”
According to Bengo4, its CloudSign is the dominant e-signature service in Japan with 80% of the country’s market share. More than 100,000 companies in a range of industries use CloudSign, up from less than 50,000 a year ago.
“Bengo4.com’s share price has risen sharply on expectations for faster penetration of electronic contract services as government-led efforts to discontinue the use of personal seals gather pace in response to Covid-19,” JPMorgan analyst Haruka Mori wrote in a research note on July 28. Mori added that there is “rapid development of legal infrastructure to support the spread of electronic contracts.”
Bengo4, whose name is a play on Japanese words meaning “lawyers,” (pronounced “bengoshi”) started as an online directory for lawyers. It listed on the Tokyo Stock Exchange’s small-cap market in 2014 and launched CloudSign a year later in search of growth as a newly public company. Before becoming an entrepreneur, Motoe was a corporate lawyer at Anderson Mori, a top Japanese law firm. He left about three years later to start his own law firm, Authense Law Office, and then founded Bengo4 in the same year.
In addition to being a billionaire entrepreneur and lawyer, Motoe, who was born in Illinois but grew up in Kanagawa prefecture near Tokyo, is also a lawmaker. The 44-year-old has been a member of the upper house of Japan’s Parliament since 2016, and was the country’s highest-earning lawmaker last year with a reported income of 845 million yen (about $7.8 million), largely from stock sales. And earlier this month, he joined newly elected Prime Minister Yoshihide Suga’s cabinet as Parliamentary Vice-Minister of Finance.
The Japanese government, which declared a coronavirus state of emergency in April, helped pave the way for the growth of e-signatures to keep office workers at home. On July 17, the government clarified that using e-signature services can be regarded as the signature of the user if the service provider ensures it is encrypted and cannot be changed, according to a report by international law firm Clifford Chance.
Japan’s new government plans to continue to push digitalization across the country. Earlier this month, Suga instructed his cabinet to accelerate the launch of a government agency which will lead a new effort to increase digitization in Japan.
Bengo4’s sales had been rising even before the government’s recent efforts. The company reported sales of 1.16 billion yen in the April-to-June quarter, up 24% year over year. The growth was led by its CloudSign business, whose quarterly sales more than doubled to 262 million yen.
Bengo4 forecasts CloudSign quarterly sales will almost double again next year to roughly 500 million yen. “We want to expand Bengo4’s business to $100 million in sales over the next four to five years,” says Motoe.
CloudSign still has room for further growth. Motoe estimates that only 1% of businesses in the world’s third-largest economy currently use e-signatures and expects that to grow to almost 5% next year. There is “potential for early regulatory easing in the real estate and financial sectors, and in fields related to corporate law,” noted Mori in the JPMorgan report. In July, Japanese internet company Digital Garage announced that it would adopt CloudSign for its online centralized management system of real estate purchasing contracts.
The billion-dollar idea came to Motoe when he was frustrated by the hanko culture while working as an attorney. “I had to put stamps on a huge pile of contracts one by one. I felt such inefficiency in the business culture,” he says.
“Subsequently, I saw electronic signature became quite popular in foreign countries and believed it will be popular someday in Japan as well,” adds Motoe. “Forecast, prepare, then wait,” he says, quoting one of his favorite proverbs by Masayoshi Son—the CEO of SoftBank and the second-richest person in Japan.
Now, with the rapid growth of e-signatures, Motoe has big plans for Bengo4. “I want to change the world,” he says. “I want to make expertise commercialized and for more people to easily access experts.” He points to his e-signature service as an example. “CloudSign changed the system—the way of business culture. That’s the sort of changes Bengo4 wants to achieve.”
He explains, “In today’s world, some people know more than other people, such as in law and tax, so the gap between how much you know is greater. Filling this gap through the internet—that will surely change the world for the better.”
— With assistance by James Simms.