Becoming an e-Commerce Centre of Excellence

Deutsche Post DHL Group (DPDHL Group) is the world’s leading mail and logistics services group, generating revenues of more than €59bn in 2015. Nearly half a million people are employed across the group, which includes over 930 entities across more than 220 countries and territories. Bearing in mind the diversity and vast geographic reach of the business, treasury has a major role to play in facilitating growth, whilst also responding to changing demands created by emerging business models such as e-commerce, as Carola Schmitz Becker, Head of Cash and Banking at DPDHL Group, explains.

Earlier centralisation initiatives

Like many treasury functions, we have been through a journey to centralise, optimise and standardise cash, treasury and risk management activities across the group, transitioning from a reactive, sometimes firefighting approach to being a more strategic architect for the business. Starting in 2009, after an intensive phase of acquisitions, DPDHL Group had a decentralised treasury organisation with a variety of systems and processes, which created problems of consistency, visibility and managing costs. We therefore embarked on a project to centralise, standardise and automate our treasury activities by migrating to an integrated, process-oriented business function. This included implementing a centralised in-house bank for intercompany clearing, balance sheet hedging, cash pooling and intercompany financing. The in-house bank also acted as a payments factory for the group, with responsibility for external payments and direct debits.

The centralisation project brought a number of advantages, both qualitative and quantitative. While the qualitative benefits are often easier to identify, such as improved controls and enhanced reporting, we also calculated significant improvements in terms of reduced pressure on local resourcing, and reductions in both foreign exchange conversion costs and financing costs.

From centralised treasury to strategic business partner

With a proven track record in centralisation and process standardisation and re-engineering, we then embarked on a project to become a more specialist solution provider to the business. In particular, by strengthening our internal service offering, we would become the preferred banking partner for all our entities, offering a combination of treasury specialisation and deep understanding of the business needs of our internal partners. As part of our group-wide Strategy 2020, we have one strategic focus on growth in emerging markets, which treasury has supported in a variety of ways. For example, we have consolidated our banking relationships in Africa, reducing from over 100 to five banks, significantly increasing visibility and control over cash and risk in the region. We have also implemented innovative techniques such as virtual accounts to streamline, identify and reconcile incoming payments more easily.

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A key element of our Strategy 2020 is to embrace e-commerce to increase sales and improve the customer experience, reflecting changing ways in which consumers and businesses access products and services. This has a variety of implications, and we recognised treasury’s unique ability to contribute. For example, business units that sell products and services online need new sales platforms including online payments. This also includes the ability to pay taxes and duties for cross-border shipments online. In addition to selling directly, some business units are offering online marketplaces to third party retailers, providing the opportunity to offer new services and extend the supply chain. Moving to online channels also enables us to simplify the payments process for customers through electronic invoicing bill issuance, which also enhances our own financial supply chain. Finally, we wanted to support electronic payment functionality for point of sale (POS) transactions in shops and mobile POS solutions for drivers. From a business perspective, responding to – and in some cases driving – new business and consumer models is a vital way of growing our customer base, reducing credit risk to customers and expanding our portfolio of products and services. As payments, reconciliation and account posting is critical to the success of this, treasury had a vital role to play in the project. 

Becoming an e-commerce centre of excellence

The first step, which we started in 2011, was to appoint payment service providers (PSPs) for which we embarked on a tender process. While our intention was not to replace or disrupt our bank relationships, we found that banks did not prioritise the development of new technologies and providers to the same degree as PSPs, so they were not able to offer the online payment functionality we required. Consequently, we needed to supplement our bank relationships with specialist PSPs who provide both payment processing capabilities across multiple payment methods (e.g., cards, e-wallets, direct debits, bank transfers etc.) and fraud prevention functionality. 

Following an evaluation process in which we assessed coverage, quality and cost, we appointed a number of PSPs with a view to providing global coverage; however, there are still some areas in which our team cannot yet directly support e-commerce, especially in parts of Latin America, Africa and Asia. Our aim is to have local payment businesses with local currency settlements and local alternative payment methods if available. Our existing global PSPs still have some white spots in the world and hence we will look for further regional PSPs to enable business units to set up an e-commerce offering quickly without the need to set up new PSP relationships and contracts.

Building new partnerships

Working with PSPs has been a relatively new experience for DPDHL Group, which has brought positive outcomes to our business. It is typically easy to access the service, with user-friendly systems and processes, and straightforward integration into our internal systems.

Incoming payments are still credited to our bank account, but via a single credit from each PSP. This reduces the number of flows on our accounts, with more consistent information, but at the same time, we are able to accept a wide variety of different payment methods. There were some challenges to overcome, however. Firstly, payments are more expensive than under a traditional cash management arrangement. Secondly, there were some complexities to overcome as some additional contracts (beyond the framework agreements) were required with local acquirers and PSPs in some cases. Thirdly, and most significantly, PSPs are not willing to accept any risk to the merchant, unlike banks.

Benefits of a centralised approach to e-commerce

Centralising support for our group e-commerce activities has brought a range of benefits to DPDHL Group and supported us in the overall approach with Strategy 2020. By contracting central framework agreements, and managing relationships centrally, business units are able to focus on the commercial and customer-focused elements of their e-commerce strategy, and accelerate the implementation. By contracting at a group level, we have also achieved more competitive pricing and more consistent reporting. Treasury has also consolidated its role as a strategic business partner to the business. We have built up substantial knowledge and credibility in supporting e-commerce business models, and as such, we are increasingly providing advisory services to business units, including identifying the most appropriate payment methods for their business activities and customer base.

Wider impact

Introducing e-commerce, and working with PSPs has an impact on the entire cash management cycle, not simply on payment methods. Traditionally, for example, a payment is made directly from the customer to the supplier, whether electronically or manually, so although we need to deal with payments coming to us through various methods, the payment process is relatively direct. Under an e-commerce cash management model, the online shop (whether our own or third party) sits between DPDHL Group and our customer, with payment processing then provided by a PSP. The PSP debits the customer’s account, and credits our bank account, thereby introducing an additional party into the transaction.

In some respects, it would be more convenient, and potentially more cost-effective, if we could access comprehensive PSP services from our banks rather than working with multiple partners. Some banks are investing in services either directly or in partnership with financial technology (fintech) companies to become PSPs themselves; similarly, some hold an acquiring licence and partner with PSPs. However, at present, there is still some way to go before banks develop the range and depth of services offered by PSPs, and in some cases, banks are reducing rather than enhancing their payment services.

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While the growth of PSPs to support emerging e-commerce business models is likely to impact banks’ payment services, there are still services that are unique to banks, notably providing credit. In some regions too, banks are playing a different role: in Africa, Standard Chartered is taking a lead in offering payment gateway functionality, which we are anticipating with interest. 

A maturing business model

We now have significant e-commerce activities in Germany and many European countries, with business units in other countries also developing e-commerce services at a rapid rate. Treasury continues to be proactive in offering specialist support and consolidating our position as an e-commerce competence centre. Furthermore, as our relationships with PSPs mature, we are building a relationship management model with these providers in the same way as we do with banks. One of the most significant elements to this project from a treasury perspective has been our ability to demonstrate our strategic contribution to the business, and position the treasury function as a specialist partner to the wider business. As business models, and therefore customer engagement and payment models, continue to evolve, we look forward to continuing in this role to facilitate change and drive growth.