[Column] Gilbert Saggia: The future of postal services - digital transformation driving new business models

From the time the first state-run courier was established by Roman Emperor Augustus in the first century AD, global postal services have slowly evolved: the first postage stamps, for example, were only issued in 1840. For nearly 2000 years, the main business of postal services was to deliver letters to businesses and citizens. The business of post was largely undisturbed, and minor innovations - such as airmail, the introduction of postcodes and ZIP codes, and express mail services - only refined and improved the traditional postal revenue model.

However, following the advent of the internet and the growing pervasiveness of mobile devices and other digital technologies, postal services have seen a steady decline in their core business of delivering letters and post to recipients around the world. According to Accenture, mail contributed 55% of total postal services revenues in 2007; by 2015, that figure had slipped to 44%.

Today, postal services face declining mail volumes, low margins in the highly-competitive parcel delivery business, competition in last-mile services, and the challenges of balancing over- and under-capacity in the postal network while ensuring constant service quality and customer proximity at a sustainable cost.

In response, postal services organisations have diversified into a broad range of new service areas. In fact, revenue from non-mail activities such as parcels, financial services, logistics and retail exceeded that of traditional mail revenue for the first time in 2014. New postal services revenue opportunities span government services, authentication, freight, customs brokerage, data collection, payments, and more.

New growth opportunities

eCommerce represents a tremendous opportunity to postal services as consumers become increasingly comfortable with ordering items online from emerging eCommerce platforms, as well as traditional brick-and-mortar making the transition to digital environments. The African eCommerce market is projected to reach $50-billion in 2018, up from just $8-billion in 2013. As the volume of online sales increases, eCommerce providers are seeking cost-effective channels for the delivery and collection of purchased items. Postal services, with their long-established national networks and experience in last-mile delivery, are emerging as effective partners in this regard.

In Kenya, for example, a partnership between online marketplace Jumia and the Postal Corporation of Kenya enables online shoppers to collect items they purchase on Jumia from a post office nearest to where they are.

However, many global postal services organisations are not equipped to take advantage of this growth in eCommerce: while B2C eCommerce is growing at a global rate of 17%, parcel volumes among postal services organisations have been growing at less than 5%. Part of the issue is low adoption of digital technologies as core business and innovation drivers among low-performing postal services organisations. Where digital adoption is high, new innovations inevitably emerge: the launch of mPost by Kenya's postal services, for example, has turned every mobile phone into a formal postal address, enabling members of the public to gain access to letters and parcels no matter where in the country they are.

Maximising the traditional mail business

To transform, postal services must prioritise the defence of their core business by improving operational excellence, generating new revenue streams with innovative new service offerings, and providing best-in-class eCommerce and postal services experiences to increase customer loyalty and citizen demand for postal services.

This can be achieved through a process of digital transformation. By integrating all aspects of the business into a powerful digital core, a platform is created for re-engineering business processes and transforming business models. Exponential technologies such as IoT, AI and blockchain can also be integrated: leveraging IoT in the supply chain, for example, enables postal services to better track, manage, analyse and predict key business opportunities. Predictive analytics powered by machine learning can guide decision-makers as they seek greater operational efficiency, and in the development of new revenue streams.

Value-added services such as lifestyle banking can be supplemented with analytics-driven personal finance management to increase customer loyalty and optimise cross-selling and up-selling. Flexible billing options based on agile pricing strategies that charge according to weight, volume, temperature control, or delivery time can be further enhanced through tiered pricing and volume discounts to increase partner and customer satisfaction. And with a powerful digital core, postal services can quickly scale to support massive volumes of transactions from millions of customers as the partner ecosystem grows.

In fact, integrating the digital core of a transformed postal services via APIs to other businesses can further enhance growth of B2B and B2C revenue streams. This will enable businesses that already have a digital core to incorporate the postal supply chain into their business processes in real-time, thereby offering their customers end-to-end visibility value, integrity of goods, and automatic crediting and debiting of accounts via a connection to banks.

One of the world's oldest industries is at a crossroads: go all-in on digital transformation to unlock new business models and optimise existing operations or watch as their core business dwindles away. How will Africa's postal services respond?

Gilbert Saggia is Managing Director, East Africa at SAP Africa