Are Your Margins Falling? There’s Money in Payments

mark 516277 640As you may be painfully aware, logistics companies have felt significant margin pressure over the past decade. According to a report by consulting firm Oliver Wyman, they experienced a decline in profitability from 6.8 to 4.2% EBIT between 2005 and 2012. Furthermore, only 35 of the 100 top global firms in the space have increased their profits since 2005.

At the same time, the e-commerce market has exploded into a trillion-dollar industry. According to Forrester Research’s “U.S. Online Retail Forecast, 2011 to 2016” report, US shoppers alone will spend $327 billion online this year. Considering the key roles played by logistics, supply chain and shipping companies in the e-commerce value chain, shouldn’t there be some way for them to create new revenue streams from this growth?

Now there is.

The Payments Option

Ovum recently surveyed key decision-makers in enterprises globally and found that a majority of executives in all industry sectors now view payments as a clear part of their business strategy. In both the consumer and enterprise spaces, payments are now seen as a crucial contact point in the customer experience.

For this reason, service providers across a multitude of sectors – e-commerce, software, accounting and more – are slowly coming to the realization that payments are a critical component of any end-to-end solution they want to offer. So why not supply chain companies?

Supply chain companies already handle logistics and delivery, and it goes without saying that they already have their own customer bases. This puts them in a perfect position to rapidly and inexpensively add payment module to their offerings.

Logistics companies can enjoy considerable business benefits from adding payments solutions to their offerings, including:

  • Margin and revenue growth
  • Accelerated sales
  • Higher margins for smaller deals
  • Future opportunities along the e-commerce value chain

So how do I do it?

It takes just three steps for a supply chain/logistics company to begin offering payments as part of an end-to-end solution. These are:

  1. Become PCI Data Security Standard (PCI DSS) compliant – No business can accept credit card payments unless it is PCI DSS compliant; this ensures that customer payment card data is kept secure. The PCI Security Standards Council can help you navigate the different compliance requirements of each payment card brand.
  2. Partner with a merchant acquirer - An acquiring bank is the financial institution that processes credit card payments on behalf of a merchant. Whenever a card is used to purchase something, the acquiring bank approves or declines the transaction based on customer account information secured from the issuing bank and card network.
  3. Choose a payment gateway – A payment gateway allows you to relay transactional information between the e-commerce checkout page (or other purchase point), the customer’s card issuing bank and the merchant’s acquiring bank. Many different companies offer payment gateways, so they are not difficult to find.

Do as the Europeans Do

Although the idea of logistics/supply chain companies becoming involved in payments is fairly new to the U.S. market, several European companies have had tremendous success with it.

Swiss Post offers a comprehensive portfolio of services covering the whole e-commerce value chain, including ordering, payment, logistics, marketing and customer care. Customers can purchase these services bundled as an end-to-end solution, or as ‘a la carte’ individual services.

DHL Netherlands is another good example. This company’s web shop package for SMBs includes everything from financial services and order management to web shop design and hosting, to warehousing, packaging and distribution, returns management and customer service – all under one roof.

Arvato Bertelsmann has also partnered with companies in payments and other fields to create an end-to-end e-commerce solution for its customers. These alliances allow the company to offer not only logistics and transport, but customer service, e-commerce consulting, integrated financial services, large-scale project management and more.

Endnote

According to SJ Consulting Group, the world’s 50 largest logistics companies combined generated only $248 billion in revenue last year –a mere 5 percent increase from 2013’s $237.4 billion. And as e-commerce sales continue to rise year over year, many logistics, supply chain and shipping companies are wondering why none of the fortune seems to be trickling down to them.

Payments could make all the difference.

By adding payments to their service offerings, logistics companies can create new revenue streams and take initial steps into the world of the payment service provider (PSP). When you consider the fact that shot up from 9.6% to 18.6% between 2012 and 2013 (with revenue growing 22.1% annually), that may be just where they need to be.

Yana Persky is Competitive Intelligence Manager with Credorax

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