Vol.1 | Issue 2 | 2013 the Postal Industry Innovation & Markets Is the future of the posts predefined... or do they have a choice? Reflections on the Postal Innovation Platform (PIP) Conference 2013 The Postal Innovation Platform (PIP) is a unique platform and forum that focuses on innovative postal services and studies the future of the postal industry with a solution oriented approach. It provides a conference, think tank and research platform that is unique in the postal world and shall ease the implementation of new and innovative postal business solutions. Follow us on our website: http://pip-conference.epfl.ch/ Matthias Finger. Switzerland (phone: +41. EPFL-CDM.02. Switzerland in order to present innovative ideas and business solutions and discuss some of the most pressing issues the postal world is dealing with today. Williams 11 Virtual Currencies and Physical Posts: A Perfect Match Christian Jaag and Christian Bach the Postal Industry | Published two times a year. Enjoy reading our second Postal Industry Newsletter and if you have any suggestions. 3 Reflections on the Postal Innovation Platform (PIP) Conference 2013 Bernhard Bukovc 5 ICTs.80. Opinions are the sole responsibility of the author(s). but it is likewise fascinating how much innovation potential is unleashed in this process. Please do register at <http://mir. email: <[email protected] Editorial Dossier From 24 to 25 September senior executives and opinion leaders of the postal industry met in Lausanne. a process of ‘creative destruction’. The editor establishes caps. sub-headings. Publication director | Matthias Finger Editor in chief | Bernhard Bukovc Editor | Toni Männistö Founding editor | Matthias Finger Publisher | Chair MIR. web-site: <http://mir. Letters may be edited.ch/newsletter> to be alerted upon Bernhard Bukovc. introductory abstract and inserts in articles. Send your letter (maximum 450 words) to the editor-in-chief.21.ch>. No doubt. Letters | We do publish letters from readers. General Manager and Chairman of the Postal Innovation Platform publication. Does this mean that this is the final ‘good-bye’ to the posts as we know them? Or are posts really in a position to prevent the slow. headings.00. but the posts that understand these new needs and change their strategies respectively will be in a lead position and will collect the benefits of their forerunner status.epfl. change or adaptation anymore. Station 5. Internet and Postal Operators Matthias Finger 6 Restructuring Security and Customs Controls for a Seamless Cross-border Postal Service Toni Männistö 9 Only Castles Burning: The Creative Destruction of the World Posts David C. at least one thing is certain: The customers are still out there. but continuous downsizing of their core businesses? Whatever the future will bring. the postal industry is under pressure. Building Odyssea. information and opinions on current issues. What is required in order to cope with the challenges is nothing less that ‘re-invention’ of today’s postal business or. So what are the success criteria? Actually the answers are not so new: (1) know your USPs.21.693. comments or questions please do not hesitate to contact us. However. (3) be innovative and create a market. The letter will be published along with the name of the author and country of residence. (2)know your customers. It provides original analysis. contains information about the postal industry. we are not talking about evolution.ch/> Published in Switzerland . CH-1015 Lausanne. going even further.epfl. Subscription | The subscription is free. Their needs and demands have changed and will change even further in the coming years. He also edits the articles.693. Please include a full postal address and a reference to the article under discussion. 00. fax: +41. director. . such projects and processes fail not for reasons of technicality or the complexity of the process. Several posts have implemented such service * General Manager and Chairman of the Postal Innovation Platform. They have to change. such as digital mailboxes. it can entail a constructive process that would build something new on the ashes of whatever was before. but will they lead to a successful product or service that creates additional volumes and turnover? Innovation management is another term that came up during the discussions and bpost’s model of identifying ideas for projects and solutions and putting them through various stages until 5 projects that promise each an additional turnover of at least € 10 mio. In most cases. let’s start with the basics. will cease to exist in their current format and will have to re-invent themselves in order to stay relevant. though also surprising. heads and guts of all that are involved. such as for example digital letters. The general tenor was somewhat less revolutionary and focused rather on re-invention or simply transformation. First. That’s why the conference was started by underlining the importance of this ‘creative destruction’ which reverberated throughout the conference in many different forms. very important. as we know them. Why destruction is not necessarily a bad thing to happen is only one of the many things the participants of the Postal Innovation Platform (PIP) Conference. However. In fact. digital stamps or other products or services offered in a digitalized format. <bernhard. but it is certainly less challenging than finding the right business model for the new market and customer needs.Dossier Reflections on the Postal Innovation Platform (PIP) Conference 2013 Bernhard Bukovc* The tone of international postal conferences and think tanks has certainly changed. before venturing into new and unknown domains. as many other industries as well. It is a real challenge. there are solutions which can be found quite frequently today and which could be described as stand-alone and intermediary functions. This is certainly less innovative. Many are already grasping the great opportunities. This allows testing the most promising ideas after a thorough analysis and ideally these new services or products create a new market and arouse new customer needs. However.. need to find new business models that reflect today’s market and customer needs. It is clear that posts. This future oriented and customer centric approach could thus be the first step into new areas of business opportunities. Ideas may come easily. Posts need to ask themselves some relevant questions. and find the respective answers. However. One has to distinguish the different ways through which digital services can play a role in the postal sector. even though these terms might be less violent. In order to succeed a thorough transformation management needs to be in place and companies have to make sure that they win the hearts. this is not so easy. One area where a lot of innovation happens today is digital business. posts need to show a willingness to innovate. Who are their customers today? Who will be their customers in the future? What are these customers’ needs? And then. Again. transform or re-invent themselves. there are digital services that are directly linked to traditional postal services. But how can these processes fail if large companies with ample resources and experienced suppliers and business partners undergo a transformation process? The answer is simple. being innovative is not so easy. but could be convenient for some customer segments. It has become much more revolutionary as more and more thought leaders realize that the world posts. the level of transformation could be as destructive as one can imagine. Re-invention requires a profound knowledge of the market environment.com> the Postal Industry | Vol 1 | Issue 2 | 2013 3 . which might suggest different levels of intensity.bukovc@gmail. Second. The process is delicate and bears some risks. They mainly fail because of non-technical reasons. are implemented. They need to be ready to create a need for their products and services in the market. learned. or in other words: the basics of transformation management have not been applied and the venture was actually doomed for failure from the start. Whenever we talk about transformation processes we also need to talk about failures. They need to focus on the customer and test potential business models. But let’s focus on some basics. others will have to follow or . which took place in Lausanne from 24 to 25 September. However. It also needs to be mentioned that many posts have done a lot and were quite innovative in providing market oriented solutions along the e-commerce value chain. whether this would be on a more traditional level or through a cooperation in the area of e-government. Two sessions were devoted to business opportunities and e-commerce. Although e-commerce and the growth of parcel and large letter volumes is the positive contrast to declining mail volumes for many years already. Similar services are offered by other providers as well and it is still questionable what the USP of posts in this area is. It needs to be seen whether a postal operator will surprise us and come up with a serious social media approach in the near future. Let’s not be too critical. Another area where postal operators might develop new service or product solutions would be in partnership with governments. Posts must present themselves as partners to which governments can outsource part of their services. the Postal Industry | Vol 1 | Issue 2 | 2013 . return solutions are often missing and information gaps refrain customers from buying abroad. This could be an advantage for governments because they could save costs and for posts because they would establish themselves as intermediaries between governments and citizens or businesses. Governments need to be seen as large customers and need to be treated this way. when listening to various stakeholders and also postal operators. In the end. As a conclusion. on the international level hardly anything has moved. Postal operators still need to prove that they can generate turnover through these digital stand-alone service offerings. providing insights into new and innovative services some posts have developed. but hardly any postal operator has so far tried to look deeper into this topic or started to work on a solution. others have adapted their logistics and product offerings and others offer their own payment solutions. Many posts still seem to struggle with these questions.dossier solutions where they offer save storage and sharing possibilities of digital documents. The questions are: Who are your customers and who will be your customers in the future? What are their needs? And what are your USPs in order to provide them with what they need? It is doubtful whether today’s business models will still be able to cope with whatever the answers to these questions are. In any case. posts will have to draw up a portfolio of service offerings and convince their respective government to work closely together. others still need to find the right understanding with their governments. Some posts are quite active in this context. no post will be able to avoid the transformation or re-invention process. During the conference several cases were presented where companies successfully implemented a social media strategy that led not only to turnover increases. but many others are coming up with responses. However. Delivery prices seem to be high. Some have implemented solutions that would help e-retailers build their web shops. showing what the critical steps in innovation management are and sharpening some of the questions that are today more important and relevant than ever before. but boosted the brand image as well. above described digital solutions will probably only be successful if the government can be won as a heavy weight customer. Of all three digital formats the third one on social media seems to be quite promising. the Postal Innovation Platform (PIP) Conference 2013 moved the discussion on the postal future forward. but in any case. thus generating additional volumes and turnover. attract new customers and thus increase their turnover. And finally there is the entire spectrum of social media where posts could try to enrich the customer experience. Customers still miss a ‘seamless experience’ when ordering in another country. It would be a pity if posts would lose the 4 international e-commerce business because of acting too late or not vigorously enough. postal operators still seem to find it hard to develop customer focused solutions. what several speakers underlined was not very comforting for postal operators. many others. etc. Let us remember that posts. Entire industries are transformed.ch> . among others.g. do bring fundamental changes to the economy and society. Transferring (or intermediating) money is also about to be affected by the ICTs and the internet and will inevitably hit these postal operators offering giro and financial services. considering the above megatrend or shall they reinvent themselves altogether? Perhaps as a retailer? Or a social services provider? Both options seem to be quite risky. As such. and still is. the Postal Industry | Vol 1 | Issue 2 | 2013 5 . the ability to treat (quantity). and soon higher education. B2C. Switzerland. * Professor. What does this all mean for postal operators? At first. Rather. business models of posts will have to evolve.Dossier ICTs. albeit with a certain time-lag. manage (quality) and personalize data increases exponentially by the day. at least for the time being. B2B. and historically also governments. goods. But.. In addition. A safer bet would probably be a strategy that consists of inseparably combining digital and physical. A pure digital intermediary seems to me to be quite risky. photography.. this is what they do best. or more plainly. however. along with the internet. something which is probably also closer to reinvention than to transformation. demographic. and money (e. the postal mail business and will continue to do so. Not constituting an industry. the ICTs allow for the digitalization of (almost) everything. then the next logical question is whether to become a “digital intermediary”. lead to global and ubiquous availability of the so digitized data and enable two-way interactions among all persons (and machines) connected. mobility. the ICTs and the internet further accelerate globalization. which is probably simply due to administrative inertia. Like in all other industries. It would therefore be illusionary for posts to rely on government protection in the age of pervasive digitalization . they intermediate between businesses. if disintermediation is a megatrend – which in my mind it undoubtedly is – then parcels and the postal logistics business will not be safe from the ICTs and the internet either. no such thing as a postal industry. Amazon delivering their parcels by themselves. internet and postal operators Matthias Finger* When our economy and society undergo substantial changes postal operators are not exempt from these developments. customers (citizens). CDM-MIR. But the pervasiveness of the ICTs leaves no industry and no firm unaffected. of telephony. of 3D printing.finger@epfl. Like for all other firms. considering the profoundly global nature of digital intermediation. postal operators will have to transform. movies. But governments are affected by the ICTs and the internet in exactly the same way as anybody else. banking. postal operators were and remain until today intermediaries. to the point that some (few) posts now make more money with parcels than with letters (which were their traditional cash-cow). probably at an accelerated pace. if not going extinct. social. if not change altogether. at origin. if not reinvent themselves. Think. But not only society and the economy at large are affected. At least. never forgetting that it is at the local level where physical matters most … today and in the future. more academically. as is best remembered in the case of Kodak and more recently Nokia. “disintermediation”. postal activities were basically government mandates and postal operators were simply implementors of government objectives. posts have to reflect on their role as intermediaries: shall they remain in this role. as we all know. Disintermediation (called “substitution” in the postal jargon) has already affected. a phenomenon known as “cutting-out-themiddle-man” or. were no businesses and there was. but do posts really have a choice? If deciding to remain intermediaries. But do they really have a choice or is their future role already pre-defined? We do know that the Information and Communication Technologies (ICTs). Combined with profound economic.). among many. we know that intermediaries are particularly challenged by the ICTs and the internet. Email: <matthias.. the newspaper industry. The firms operating in these industries are of course the first ones affected. Parcels and more generally logistics. along with the fact that no postal operator will ever be able to compete with the Googles of the world. who want them to transport information. To recall. Yet. and cultural transformations. Think. EPFL. it is not different. seem to be exempt or even thriving as a result of widespread ICTs and internet usage. Postal operators are (in my mind falsely) comforted by the fact that parcel volumes are up. and actually not many postal operators do anymore. individualization and consumerism. This leads to some serious questions concerning their future roles and strategies which postal operators should be able to respond to. for example. C2C. Why would this be different for postal operators? To be clear. security and safety screening2 before loading onto airplanes. Seven strategies for restructuring security and customs controls Authorities shape the national regulatory regimes by translating general policies and conventions into practical requirements. and this upward trend shows no signs of slowing down.mannisto@epfl. To the Posts’ advantage. middlemen. and more reliable international shipping services e-commerce customers demand. * EPFL. international airmail shipments undergo export clearance. especially. Similarly. the flight passengers often queue for another passport control and may get their luggage checked by customs officers. the postal shipment could have taken an earlier connection. the customs and other modern-day authorities are often willing to listen to their “clients”—the companies. the Postal Industry | Vol 1 | Issue 2 | 2013 6 . Security and customs controls in the international postal service The expansion of the international e-commerce has led to an increasing demand for cross-border delivery service over the past ten plus years. due to the current complexity of the international postal logistics. major importers and exporters on compliance matters. and these costs are factored into the price of international postal service. it’s not clear whether the Posts can offer the service international e-commerce customers are looking for: fast. I propose following seven strategies for restructuring the security and customs controls for the seamless crossborder postal logistics. and the national aviation authorities regularly consult top airfreight shippers before imposing new air cargo security and safety controls. security and customs controls disrupt and delay the cross-border postal logistics. the security and customs controls undermine the on-time delivery performance of the international postal service. and sometimes postal shipments may get stuck in the customs for days. The cross-border logistics involve procedures. but a priority letter from Switzerland to France is delivered in two to three days at nearly four times higher fee (Swiss Post 2013)1. Due to this complexity. cheaper. Besides the wasted time. a domestic Swiss first class letter reaches its addressee next day. is often subtler: had there not been the time-consuming customs and security controls. For example. And obviously. making it hard for the Posts to develop faster. hazards. The customs listen to. and the customs examine a percentage of these shipments for contraband. The delaying effect of the controls. international mail delivery takes significantly more time and costs up to five times more than the domestic delivery (Möller 2013). Clearly. however. the Posts would co-create the rules for security and customs controls together with the competent authorities. This article describes how the Posts and authorities could work together to restructure security and customs controls for a seamless cross-border postal service. This spirit of collaboration allows the Posts to influence the development of the national regulatory regimes. At the arrival. 2 Air cargo and mail security screening targets assembled explosive and incendiary devices. Variable security and customs control times account for most of the missed flights. Price on October 16. 2013. or even weeks. These strategies aim to attain a high level of regulatory compliance with low impact on the speed.Dossier Restructuring security and customs controls for a seamless cross-border postal service Toni Männistö* Security and customs controls complicate cross-border postal logistics. However. affordable. Chair MIR. the Posts must declare most imported postal shipments to the customs.ch> 1 An international priority letter versus a domestic Swiss A-mail letter (100 grams). reliable and flexible cross-border delivery. and other complicating factors that are absent in the domestic postal traffic. <toni. the security and customs controls explain the great deal of the rest. Long distances explain only partly the striking differences between the international and the domestic postal services. the security and customs controls cost money. even though the geographical distance is comparable. The same way flight travelers must pass pre-boarding security checks and passport controls. reliability and the cost of the international postal service. and ideally. and aviation safety screening any other substances that may cause problems during the flight. International postal shipments may miss their scheduled flights or other connections due to the security and customs controls. Altogether. screening and physical examination activities. such as the X-ray imaging and sniffer dogs. would be asked to examine the postal shipments when the letters and parcels are idly waiting for a transport to a next mail handling facility. decrease but never eliminate the risk of hidden explosives or contraband in the mail traffic. the Posts and the authorities could decrease the variability and uncertainty involved in the cross-border logistics by communicating their intentions early on. This approach slows down the delivery process and makes the delivery time highly uncertain. staffing. and endanger work safety (bombs may explode upon opening). The customs officers. So we face a dilemma: every step away from the painstaking pieceby-piece examinations increases the risk of the hidden bombs and contraband but mitigates the negative impact of the security and customs controls on the postal logistics performance. sequence. Obviously. and other mail handling facilities along the optimal postal delivery route. in turn.g. The centralized controls also limit the need for training. is to block the postal shipments indefinitely. sorting centers.dossier Strategy 1: Decide target levels for security and customs risks Screening methods applied in security and customs controls. Strategy 2: Select. and fine-tune control systems Some security and customs control systems achieve the targeted risk levels at a lower financial and operational cost than others. in contrast. and site of the control). and determine the need for follow-up controls. In fact. The screening activities. sequenced. and congestion is sensitive to even incremental changes in the mix. inflate costs. which makes it easier to justify heavy spending on faster and more effective screening equipment. The most disruptive way for the controls. if the Posts screened airmail for security and safety threats already at post offices instead of airports. For example. The first step in finding the balance between the polar extremes between the prohibitive error-proof controls and the precarious zero controls is to decide on target levels for security and customs risks. The scale benefits arise from two main sources: the efficient use of capital and the specialization of security and customs expertise. Centralized controls spread the investments over a large number of shipments. For example. in particular. the Post could arrange an expedited connection for the examined consignment to offset the control-induced delay. the only way to ensure nearly zero risk is to open every parcel and envelope for detailed physical examination. duration. as this strategy would cut the pre-control waiting time down to zero. The second least disruptive way to control the postal shipments is to examine them immediately when they arrive at the postal facilities. The targeting determines appropriate screening activities by matching shipmentspecific information with prescribed risk profiles. if the customs communicated in advance that their officers will examine a particular postal consignment on arrival (e. Strategy 3: Locate the controls along the optimal delivery route The Posts and authorities can streamline the cross-border postal logistics by locating the security and customs controls at exchange offices. thousands of post office clerks should get training on aviation security and safety . scheduling. Because the customs and security controls would take place at the same premises as regular mail handling activities. the arrangement would eliminate unnecessary detours to security and customs control sites. thorough piece-by-piece examinations would congest and slow down the mail delivery process. The customs. the Posts would reply to the customs’ prenotifications on forthcoming controls with a proposition detailing the optimal time. Indeed. the Postal Industry | Vol 1 | Issue 2 | 2013 Strategy 4: Communicate intentions early on Early notifications on exceptional security and customs controls would give the Posts time for proactive logistics and capacity planning (e. should look for ways to relocate the customs controls from the border to inland mail handling facilities. timing. duration. Those smart control systems build on a carefully selected. cost.. sequence. The next step is to design control systems that reflect these decisions on the targeted risk levels. The detection rate of the control systems and the controls’ impact on the logistics performance in terms of speed. and alarm thresholds of the applied control activities. and location for the controls. test the shipments for hidden bombs and/or contraband. and space allotment). the controls would have no impact on the speed or on-time delivery performance of the postal service.g. The targeting and screening activities save time and resources because they direct only the highest-risk shipments to the laborious physical examination. if the security and customs controls exploited the idle periods between the regular mail handling and transport activities.. Strategy 6: Centralize controls for economies of scale The security and customs controls are subject to economies of scale because the average cost per controlled shipment tends to decrease as the number of screened shipments increases. for example. Strategy 5: Synchronize the controls with regular handling and transport activities Ideally. 7 . and fine-tuned mix of complementary targeting. htm. and best practices on security and customs management in the postal sector.post. [Online] Available at: http://www. research. productivity improvement of the existing control points. in spring 2014. the security and custom controls can turn into bottlenecks when the flow of shipments overwhelm the control capacity. the center provides a platform for top-level discussion. 8 the Postal Industry | Vol 1 | Issue 2 | 2013 . The vision of the center is to become the one-stop-shop for world-class security expertise in the postal and courier sectors. A. Queuing theory suggests three approaches for expanding the throughput rate of the security and customs controls: set up of additional parallel control points. and more advanced technology. and cost-efficient cross-border postal logistics is crucial if the Posts want to fulfill the needs of the e-commerce customers and capitalize on their growing demand for international shipping. (2013) Simpler. The event promotes exchange of research findings. smarter – Industry actions to increase the level of e-commerce. Paper presented at PIP conference. Conclusion This article described seven strategies for restructuring the security and customs controls and improving the cross-border postal logistics performance. is a waste of money. September 23 – 24. The Center for Postal and Courier Security will host a “Security and Customs” session as part of the Postal Innovation Platform (PIP) Conference in Lausanne. academics and policy makers.ch/en/ post-startseite/post-privatkunden/post-versandkalkulator. Swiss Post (2013). but excessive control capacity. The third approach compromises the normal standards for security and customs controls. novel ideas. and relaxation of the controls. equipment. there is need for flexible control capacity that can accommodate to the fluctuating mail volumes. on the other hand.dossier Strategy 7: Balance control capacity with traffic Like any other activity in the postal pipeline. reliable. Fast. Congested security and customs controls delay the mail delivery. [Accessed 16 October 13]. The two first approaches require investments in more staff. cheaper. Announcement: The Chair MIR of the École Polytechique Fédérale de Lausanne (EPFL) has established the Center for Postal and Courier Security to respond to the growing demand for security research and expertise in the postal and courier sectors. Sources Möller. Lausanne. Bringing together leading experts. Mail calculator for private customers. Therefore. and training. Inspector General. web sellers now allow you to browse endless varieties of goods any time of day or night. But waves of creative destruction keep washing over us. * Inspector General for the U. For example. Businesses and citizens throughout the world are being forced to adjust to an increasingly rapid pace of change in a flat. this time. It’s pretty clear another big wave is building while we are still paddling around on flotsam in the flooded streets. wiping out the worlds of our childhoods. governments are drastically slashing budgets. Digital photographs could be emailed or texted to buyers by the posts upon acceptance. individuals and businesses must be able to link to a parallel physical infrastructure that can seamlessly navigate from atoms to bits to atoms again.S.S Postal Service the Postal Industry | Vol 1 | Issue 2 | 2013 9 . It’s what we do. We will need to understand what is possible and what is inevitable and then construct that vital infrastructure that will support people and propel commerce in the coming chaos. Switzerland. All of society is affected. To get the most out of the new digital platform existence. Companies with tiny staffs. Williams* This commentary by David C. Yet the posts are not alone in facing the relentless pressure to invent breakthrough technologies in a zero-sum game. But we are naïve if we think only merchants are in trouble. As everyone flees the physical world of atoms for the digital world of bits. That’s what many of us have done again and again for 500 years. damaged economy. media. Williams. but with no vision of what they are building down to – vaguely preparing solutions far too small for the gaping holes that technologies have torn open.Dossier Only Castles Burning: The Creative Destruction of the World Posts David C. the world post networks form a map overlay of physical fulfillment and logistics support that aligns perfectly and proportionally to the glowing nodes of our wired world. and supply chains. upending formerly safe markets. Fortunately. and local merchants with no available parking and limited stocks are in huge trouble. World posts already bring physical fulfillment to a wired planet that operates at the speed of blur. summarizes his speech on the Future of Postal Services at the Postal Innovation Platform (PIP) Conference in Lausanne. The postal sector finds itself running furiously to stay in the same place as innovation replaces innovation. are superseding companies with large workforces that make and build in mass. • Postal escrow services would enable commerce by ensuring that sellers did not receive funds until the goods were accepted by one of the world’s posts. And what about governments? They are struggling to fund their traditional services as taxpayers refuse to finance both yesterday and unimaginative tomorrows. Much that was physical (atomic) is now digital. A new postal digital platform combined with the complementary physical network of post offices and carriers could act as an intermediary for individuals with their governments and in commercial relationships: • By offering on-demand customer identity services including across borders. U. It’s hard to see how any profession is safe as technology competes with human beings. knowing they were dealing with a real person or an established e-business. The digital age and globalism have introduced a world of amazing possibilities – the near erasure of time and space for aspects of communications. what does it mean for the world’s posts? Can we ride the next wave of innovation. posts could enable individuals to conduct transactions securely and privately. Postal Service. Instead. creative destruction were blasting the way forward for us? The Path Ahead The strength of the global postal network will be in enabling the digital age for those on the cutting edge and those left behind. That’s what an infrastructure is for. instead of disappearing under it? Wouldn’t it be remarkable if. who can imagine and rapidly retool. their innovations could transform the world and employ its citizens. Paradoxically. virtual PO Box addresses would allow items to be delivered to the customer’s location of choice. the road ahead requires a great deal of us in optimizing the current structure. If we can help innovators struggle through the initial stages of growth. the Postal Industry | Vol 1 | Issue 2 | 2013 . However. yet innovations are vulnerable at their beginning. Posts can provide connectivity and non-bank financial services to those who are not already connected. many of us have infrastructures that provide things people no longer need in such large quantities. We have left unaddressed all the things people and commerce now need. accept packages on their customers’ behalf. greatly enlarging the customer bases of digital commerce. wherever it was in the global postal network. • Foreign businesses could use virtual PO Box addresses in place of offices abroad. Posts can provide foreign shoppers with a virtual PO Box address. • Posts could establish online shopping malls to help small businesses and innovators display wares and microwarehouse space for those unable to invest in brick and mortar infrastructures. and then reship the goods to wherever the customers are. where posts could send the returns on as directed. storing their products with the local post for delivery sale by sale and allowing customers to return items to the virtual address. as we oversupply a decreased demand. with other parcels destined for that nation.dossier • At delivery. 10 And let’s not forget those left behind by innovation. I cannot think of a more agile yet massive global network than the one the world posts already possess. By retaining our physical infrastructure and aligning it to a digital platform. The Best of Both Worlds At the moment. the more digital and global our society becomes. Shoppers often want to take advantage of deals and goods in other countries. global posts can build a true 21st century Postal Service that enables people and commerce. while imaginatively envisioning a new one stocked and ready for the journey to the future. The exponential growth of innovations is extremely powerful. but cross-border commerce can be difficult and lack price transparency and security. the more need there is for a local physical anchor or virtual gravity to serve citizens and commerce. In 2012. Since the end of the 1990s. posts face the challenge of operating dense networks of branches serving the population in proximity. First. In contrast. From an economic point of view.ch the Postal Industry | Vol 1 | Issue 2 | 2013 11 . money transmitters or credit card companies for payment transactions. it is ensured that the monetary supply does not grow endlessly. Indeed. Actually. posts could forge new business and complement their physical delivery role in e-commerce with an innovative payment channel. This facilitates trade in general and is particularly beneficial to industries with low margins such as online supermarkets. By halving the number of newly rewarded bitcoins at regular intervals. a perfect match between virtual currencies and physical posts appears to have evolved. Yet more severely still. and to cross-border transactions with one global currency. there are still a number of factors impeding further adoption. Postal operators with their spatially comprehensive physical presence could play a key role in providing easy. Bitcoin is as quick and private as cash. christian. The virtues and challenges of virtual currencies Virtual currencies enjoy increasing popularity. Third. quick and nation-wide access to these alternative currencies. Gallen. between 2006 and 2010 domestic and international letter-post traffics have decreased by 3. yet entirely location-independent.3 world average. the monetary base grows at a deterministic rate. * Swiss Economics and University of St. In contrast to conventional currencies. being based on a peer-to-peer network. and in developing countries the diffusion was merely 7% among adults. Despite Bitcoin’s great advantages. 29% of the US population did not own a credit card. Indeed. respectively. Consequently. the exchange rate of Bitcoin to fiat currencies like USD. Prominent examples include token systems for shopping or loyalty programs such as frequent flyer and supermarket points.ch ** Swiss Economics. limited availability still preempts their broad usage. Bitcoin. EUR or RMD is quite volatile. It was set up in 2009 as an opensource software and is entirely decentralized. the network of postal outlets was the most dense network of branches in the world. requiring them. acceptance as payment and exchange possibilities to conventional currencies are still somewhat limited. What is currently most difficult is exchanging Bitcoin for other currencies offline. it is still in its infancy and it is not yet very friendly to use for the layman. The first challenge results from the increasing use of email and other Internet based services for communications purposes. Bitcoin enables participation in e-commerce for households without access to credit cards or banking services. among other things. discount shops. These shortcomings are increasingly being taken care of by new startup firms offering payment processing and currency exchange services. christian. Bitcoin as an alternative and independent means for monetary transactions also puts competitive pressure on the legacy banking and financial system. in 2012.Dossier Virtual Currencies and Physical Posts: A Perfect Match Christian Jaag* and Christian Bach** Virtual currencies like Bitcoin are progressively gaining in popularity. indeed it is capped at 21 million bitcoins. Second. physical mail volumes have declined in most industrialized countries. while suffering from a decreasing demand for letter mail items. Bitcoin is not controlled by a central bank and does not enjoy a status as legal tender. In fact. trusted parties with physical presence may enhance trust and ease its usability for the uninitiated. There currently exist two major challenges for traditional postal operators: Indirect competition from electronic substitutes in the mail segment and direct competition in parcels. for instance. Due to its peer-to-peer character. the latest offspring of virtual currencies has taken them to a new level. users do not depend on banks. approximately half of the world population did not even have bank accounts in 2012. There seems to be no foreseeable end to this trend and the decrease will strongly affect the development of postal markets in the future.bach@swiss-economics. In more concrete terms. newly created bitcoins (seigniorage) are awarded to those users who contribute the most to secure the network by performing cryptographic functions. However. the number of Internet users more than doubled during the last 5 years with over 35% users of the world population and approximately 65 e-mails sent per email user daily in 2012. By offering local exchange and transaction [email protected]% and 13%. Bitcoin also has a political dimension and can be considered as highly democratic since it evolves with its network of users without the interference of any authoritative institution. The postal network thus constitutes a natural bridge between the virtual and the physical worlds. Even though the Bitcoin system is designed to function fully virtually and without institutions. In fact. with globally 642’000 post offices. A key advantage of Bitcoin is its low transaction costs due to its peer-to-peer nature and the independence of financial intermediaries. Potential roles of the Post Many Posts have legal universal service obligations. The irreversibility of Bitcoin-payments is particularly advantageous for merchants. Instead. while the average number of letters posted per capita in the year 2012 reached a record low of 49. to provide access to postal offices within reasonable distance. helping companies to expand into new markets and engage more efficiently with customers. In particular. which intends to help its member countries to introduce or develop inclusive and financial services. In particular. A natural opportunity has thus evolved: Posts may employ their network as a bridge between the virtual world of Bitcoin and traditional currencies by offering a local exchange and transaction service. which in turn would prompt consumers towards the postal operator for the delivery of their purchases. In fact. cross-border delivery has to be addressed. Hence. A striking visible consequence can be seen in the doubling of the global domestic postal parcel traffic during the last 20 years. persons owning neither a credit card nor a bank account would thus be enabled to access e-commerce via exchanging traditional currencies for Bitcoin. Fourth. In effect. On the one hand. cross-border delivery would be facilitated by a postal network of Bitcoin services where merchants and consumers could easily use Bitcoin by exchanging it for their local currency at the post office To conclude. the Post could establish itself as a leading service point for remittances in Bitcoin. the Post’s parcel delivery channel would be complemented with a growing payment channel for e-commerce. since Bitcoin 12 is increasingly used in e-commerce. while on the other hand postal operators dispose of nation-wide networks of branches with declining usage of their traditional core business. Indeed. virtual currencies are still lacking a physical interface that is easily as well as generally accessible to the public.dossier The second challenge concerns the continuously growing sector of e-commerce. the construction of a ubiquitous Bitcoin interface fits perfectly such an agenda. a forward-oriented use of the spatially comprehensive postal network for virtual currencies like Bitcoin which are increasingly endorsed yet not easily accessible provides an appealing opportunity for postal operators in the face of a changing competitive and technological environment. a ubiquitous postal provision of Bitcoin-related services could substantially increase global participation in commerce. financial inclusion constitutes a substantial objective of the Universal Postal Union. The attractiveness of matching Bitcoin and posts is reinforced by at least five further factors. posts become a onestop-shop covering both physical delivery and the payment channel in e-commerce. Bitcoin and the Post do appear to be a perfect match. the Postal Industry | Vol 1 | Issue 2 | 2013 . Undoubtedly the sustained increase in e-commerce activity constitutes a positive development for postal operators. Second. since access to traditional financial services and a stable currency is limited. Fifth. An essential issue that the posts need to carefully evaluate is their positioning and differentiating in parcels for e-commerce. Third. First. new customers could be attracted to the postal offices. In fact. which poses a major obstacle to international e-commerce. Liberalization of the parcel segment has attracted considerable competition. e-commerce has fundamentally changed the face of the retail sector. A perfect match There seems to be a well-suited match between virtual currencies and posts in view of the above mentioned challenges. over the last decade. e-commerce is a unique opportunity and one of their rare growth areas. From the perspective of postal operators.