Returns Fraud as a service is on the rise
Tackle the increasingly troubling issue of returns fraud in the e-commerce world. As return fraud rises, this once-overlooked issue is now a major concern for online retailers. You'll learn how fraudsters are gaming the system and the wild, often unnoticed, methods they're using to rip off small businesses. Brace yourself for a journey into the less-talked-about side of your shopping cart. Join us as we explore the critical steps needed to combat this growing challenge.
Kurt Elster
This episode is sponsored in part by Omnisend. Do you sell stuff online? Then you need Omnisend. Yes, that Omnisend, the powerful yet refreshingly intuitive email and SMS tool that helps you make $73? for every dollar spent. That one's so good it's almost boring. Like watching steady lines go up in charts and up and up. Just automate your email and SMS campaigns with Omnisend. Set it up once, then sit back and watch the sales roll in while you snooze. Oh, you're still awake? Then give Omnisend a try and start getting sales so steady, they'll definitely put you to sleep. Omnisend, your dot omnisend. com slash unofficial shopify podcast. My friends, welcome back to the unofficial Shropifier podcast. I'm your host, Kurt Elster. Check nasty. And today I'm here. I want to read you some headlines. This is just I typed in two words into Google News. That's it. That's all I did. Here's my headlines. Two days ago, CBS News. More Amazon shoppers scamming sellers with fraudulent returns. Uh here's another one. Amazon battles wave of bogus returns. Wall Street Journal, seven days. Amazon sellers plagued by surgeon scam returns. Retailers look to tight rules as fraudulent returns grow. Returns fraud growing problem for retailers. Retailers view return fraud with urgency. This just keeps going. And like just this is just the last sixty days. I just keep going going going with the same thing. The two words I searched returns fraud. You may have noticed this is a growing issue. Certainly uh I've I've heard the stories from merchants. Um and it's like yeah, Amazon popped up in those headlines because they're they're pretty permissive about it. But it happens to everyone now. And there is, I think in some cases an expectation that like, oh well, that's just a cost of doing business. I don't know the extent of the problem. I don't know how deep it goes, how bad it is, or what you'd do about it if you could do anything So, as usual, let's get someone smarter than me who knows about this, who could explain it to us, who could talk to us about it. And then Today's episode, let's get to somebody's. We're joined by uh Scott Gifus, CEO of No Fraud, and Shoshana uh Posner from No Fraud. Hello, welcome, both of you.
Speaker 2
Thanks, Kurt. Appreciate being here.
Kurt Elster
And you know, I like we're talking about returns fraud and based on the name of your organization, no fraud, I am assuming that you've got uh experience, opinions, and thoughts on how to avoid this.
Speaker 2
We do. We do. So first of all, thanks again for having us on the show. Giving us an opportunity to be here and talk about this. I think Uh before we talk specifically about returns fraud, I think it's important to just zoom out and talk about fraud in general in the e-commerce space for just a second. You know, the the National Retail Federation released a report. Uh in 2022, 10% of transactions were considered to be fraudulent in some way, shape, or form. And in 2023, it was 16%. So it's it's rapidly on the rise. I think it it's a byproduct of a variety of things. Uh we'll talk about more, I'm sure. But you know, at the heart of it, you've seen this proliferation of new technologies, obviously AI being the most notable, social also contributing in a meaningful way. You also seen this sort of change in in human behavior where uh sort of conducting fraudulent things is not necessarily seen as criminal activity. Right. Uh to the same extent that you described. Really? Well, yeah. Uh and and I I certainly don't subscribe to that. But there's there's some there's some sort of social acceptance that seems to be pervasive around committing fraud. And it it's happening more and more. And you're seeing communities born that are specifically focused on the dark web to facilitate fraud, identify and take advantage of these things. So it's a real, it's a, it's a massive and growing problem and it exists on lots of levels. I think also also as you sort of think about We have spent so much time and energy to create really great consumer experiences. And we've introduced a lot of new tools and technology. We've softened policies and procedures, et cetera. And all of this is just a petri dish. for fraud to to take place and and happen in a pervasive way. And so I think that all those things are contributing. What we have seen more recently, and and we'll talk about this, is that you know return fraud specifically has been a massive contributor to the uptick in fraud that we're seeing. And there are real loopholes that exist in the sort of post-purchase experience that make it easy for fraudsters to take advantage, whether that's a consumer just trying to take advantage of it or more enterprising organizations scaling these types of of programs to take advantage of of real opportunities. So we'll talk more about all of it, but You know, we we appreciate being here and we do geek out about all of these things and uh you know, happy to get into it.
Kurt Elster
Follow-up, you mentioned there is a somewhat of a a culture of acceptance here. Two things come to mind. One, uh dating myself as a a millennial, but uh Kramer on Seinfeld saying, Jerry, it's a write-off. And he goes, What does that mean? Right? So it it is easy for some people to justify their own behavior because it Yeah, well, Amazon or someone else, they're not seeing that like there is an end person and there are losses occurred here to some end person. They just see a brand name and they're like, Well, that's enough person, it's fine. Right? Like, uh, you know, that money's not really gone, no big deal. It's easy to justify to yourself. And then if you could find an online community of like-minded individuals, which you can now because of the internet for everything, no matter how how strange it is, um, even if it's like, hey, let's justify this uh white-collar crime to ourselves, you can find a group of people who will do that for you. The Other thing I think that's interesting here, trying to get people to shop online years ago was like, well, you know, we're gonna offer a better experience and we're gonna offer these great returns policies. And that was like customer service thing. to now that we've moved to the point where like, all right, we all just accept shopping online. Now though we're just you know a cohort of the population will take advantage of what is supposed to just be, you know, a a good faith effort to gain customers. Okay. I got that. And all of that is unfortunate. Um, but Yeah, but we're talking about I think you know, there's fraud, credit card fraud, returns fraud, identity theft. W specifically we want to talk about returns fraud. And then I think in general, credit card fraud is really with e-commerce what we'd normally think of as fraud. So how do those two differ?
Speaker 3
Um, with Credit card fraud typically what occurs is that the person making the transaction is not the owner of the card. It's a stolen card. um very very clear to define. With returns fraud, the person making the order is using their own card, but they never intend to actually pay for the item. They want to get the item for free by by manipulating the merchant's generous returns policy. And there's a ton of ways that this happens. And um Sometimes it's just using, you know, going via customer service, and then sometimes it's a lot more dark and using uh you know third party refunders or those that commit fraud as a service.
Kurt Elster
I'm sorry, did you say fraud as a service?
Speaker 3
Yes. Um fraud as a service. So fraud like returns fraud has always existed. Um, there were always some bad apples that realized that they can get an item for free by, you know, telling Amazon, oh, the battery exploded on this hoverboard, so um I need I I want to get my money back. There were all that those always existed. Um, but the fraudsters realize at a certain point that they can do this at scale if they just had people making these orders for them, right? Because the the retailers are realizing, oh, you're a bad apple, we'll just shut you down. Um But it's harder to do when there's a lot of people doing it and you can't figure out, you know, who what the intent of s of Um well what what is the intent when someone's pr making a making a transaction? So they realized that there are dark web channels, telegram channels that are completely, you know, no one's watching um until actually really recently. Um, and they can get people to make orders, pay them a small fee, and then essentially do the fraud for them in various forms. And they essentially have been able to scale fraud at incredible levels. Um and it's been really scary for merchants that are hit with it because it's pretty subtle. The clues aren't as obvious as credit card fraud, right? With credit card fraud you get the charge back and then you get another charge back and you're like, oh whoa, something's brewing. Here it's much more subtle. The clues are an increase in returns, an increase in lost packages, which can vary here and there. Like how how can a merchant tell if an increase in loss packages translates to returns fraud unless you're looking carefully?
Kurt Elster
I hadn't considered that. You're right. With credit card fraud, it's very obvious. You get well, a a chargeback gets opened. Like here's, you know, a letter from the bank, the credit card processor, whatever, being like, hey, this should not have occurred, but you've already sent the item. You know, it's over. And now the the bank has hopefully taken that money back and you've you've entered this dispute that you most likely will not win. Um in the returns fraud, it presents itself as it comes to you as a legitimate request from a customer. And you know, God help you if you deny a request that was legitimate because you think it's fraud. And so you have to err on the side of you taking it in good faith. And that's the loophole. That's the thing they're taking advantage of, aren't they?
Speaker 2
Well actually, yeah, it's it's it's a multiple multitude of things. So uh they're taking advantage of that that you're not going to to try to prevent, you know, a quality customer that seems like a legitimate order for all the reasons you described. But also downstream, there's a lot of ways they can manipulate you. And so it depends on the the technologies you're using. It depends on your policies and your processes. Right. So we we are And Amazon, you know, and many other companies are born of this sort of experience that they want to create where I tell you I'm not happy with the product and you issue me a I said I'm gonna send it back and you issue a refund. Right. And you may do that because I've dropped it off at a local UPS store. You may do that because I've uh uh I've sent you a picture of uh of a return tracking code. Right, but you might not have actually verified the product. And so it gets pretty elaborate. I may send a false, I may create a false tracking label and never send anything. I may create I may send something in a box back to you, but it's not the product that I've that I purchased from you. Um
Kurt Elster
That's the one I o I hear, you know, the stories about. It's like, well, we got a, you know, a box of we got a rock in a box. You know, we got a box of like somebody's used underwear. Just like, yeah, whatever they s I don't even at that point I don't even know why they bother stuffing anything in the box, I assume for the weight. Oh yeah, just like random crap stuck in a box.
Speaker 2
But but in a lot of these cases, the merchants' policies are to refund as soon as they have confirmation the package is on its you know being returned. And so the money's out the door and it's gone. Right. And you want to do that because you want to create a good customer experience. Uh and that's what a lot of consumers are expecting. And so they put the pressure on you. And you want to assume in good faith that humans are good people. And they're gonna do the right thing. Unfortunately, that's not always the case. And then to Shoshana's point, you actually do have It it it scales. You know, I sort of to always talk about these things as like the velociraptors in in Jurassic Park checking the fence, right? There's there's technology that now tests you for vulnerability at scale. They can scan your return policies and find loopholes. They can scan your technology and identify those things. So these things can happen at real scale. And the way the technology has been enabled, I'm always thinking of like Thomas Friedman, the world is flat, right? The same technologies that are enable all of these wonderful things to happen. can also be used for Evil, right? And so so we're seeing, you know, Farate Nefarious activity happening here, people taking advantage of it. And, you know, it goes back to that sort of air of social acceptance around these things because, you know, damn the man kind of a deal. And people don't realize that most of the merchants that you're taking advantage of are not the Walmarts and Amazons of the world. They're They're entrepreneurs trying to build businesses and create lives for themselves and the people that they work with. And uh and that's that's really the customer that that we serve and we go out of our way to try to support. But but enough about that. I think Those are the pieces that really come to light. And and and there are companies that enterprise this. So it really takes shape in two ways. One, You know, there's enterprising organizations that build this broadest of service and they offer these services packages for for communities. And by the way, some of these communities are millions of people. Um and the other is that you know they provide off-the-shelf technology to people and they can take advantage of these things at scale. And I can't tell you how many customer conversations we've had where One day somebody gets hit with a $5,000 broad issue, and by the end of the week, it's $500,000 a day. I mean it's really like the acceleration that happens now, I think is one of the more unique things that's taking place in the world because of the technology and the communities that exist to take advantage of these things. Whereas before It may build up over time, but you had a little bit more time to close the loop. Right. Now you can very quickly find yourself in a difficult position. And I don't, I don't like to create all this fud and like you know, around this space because that's not that's not how we think about the business, but but it is a real risk profile and you need to make sure you've got some some vigilance against that. And sometimes it's as simple as changing the policies that you have. But the problem in returns fraud is as you get deeper into the loop, you know, are you you is it your own warehouse receiving these goods or is it a third-party warehouse that you're using? What tools are you using to evaluate if the package is actually the product you sold them? And how are you getting really good at that? Because, you know, nothing against the hardworking people that that are working in those warehouses, but They probably don't understand all the SKUs, all the things, all the nuances of the products, right? That's not necessarily the skill set they have. So how do you think about creating technology that evaluates those things and makes that really scalable? And how do you sort of ensure that you're not issuing a refund or maybe you're issuing a credit that can't be used until you confirm you've received the product? But those, those, all, all those things put real pressure on you. And for good customers, That's real friction that that you know people running these companies have to think through. Because you don't want a reputation of being a company that's difficult to manage returns and exchanges on, right? Because that's that's that's part of the territory of of running an e-com business. Um at the same time you have to protect your business. So how do you get smart about that?
Kurt Elster
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Speaker 3
Um, so what let's talk about INR, um DNR which stands for um I did not receive or did not receive, and I'm using some of the terminology that is passed around on these fraud channels. So if any of the listeners here are brave enough to go onto Telegram and start doing their own research, um I'll give you a little a bit of a leg up over here. So INR or DNR means that um I didn't get my package. Um, this is very commonly used by the the individuals committing returns fraud on their own. They got their package, they're wearing those sneakers, um, and they will call the company and say, I didn't get it. And they'll get the typical You know, look around, ask a neighbor. Um, they already know this because all this uh all of the different policies that a merchant is going to put in place to try to prevent these types of false claims. are all disseminated. Um they know the thresholds for which they'll get an instant refund and not have to provide more proof and file a police report. Um and they'll just simply claim they didn't get the item. Um so that's a very common um fraud scheme. Um product swaps is when they will say someone wants a brand new pair of skis. So they'll order a brand new pair of skis Um, they'll issue a refund and they'll request a refund and then they will put in their skis from 10 years ago into the package and ship it back. Um very frequently, and as Scott mentioned, a lot of these fraudsters target businesses that issue refunds upon rec like label scan rather than inspecting the goods. So he shipped back his old pair of skis, doesn't need them anymore, saves him the effort of having to get rid of them. Um, and the item, you know, he gets his refunds and he gets his new pair of skis, who essentially got a free product. And this type's like product swaps are exist in s like on so many levels, you know. Right.
Kurt Elster
Oh.
Speaker 3
Sending back old iPhone models instead of a brand new iPhone.
Kurt Elster
That one I've seen. This was uh in high school. This guy it was this guy who's like always looking for a get rich quick scheme. And he was bright. But he'd always like go for whatever the like le the most awful option was. And he thought he was brilliant because he would buy a video card at Best Buy, swap it for a lesser model and then return the expensive box with the the lower end model in it. And then foolishly thought, like, I'm so smart, no one will ever catch me. Just kept going doing the same thing at the same Best Buy until eventually they caught him. Right. So I get how that that happens. Okay, so product swap. That one seems a is pretty insidious.
Speaker 3
Yeah. Um, but let's talk about a new fraud scheme that has been emerging recently. Um, it's pretty scary. Um, it's called FTID, which stands for fake tracking ID.
Kurt Elster
Oh boy.
Speaker 3
So this is where um it's you'll see more professionalism, if you will, in these types of schemes. So these aren't like individuals saying, hey, look, you know, I I got a free DoorDash because, you know I, you know, said it was soggy or or whatnot. Um this this goes a lot a a lot more d deep and sinister. So um Fake track FDID stands for fake tracking ID and this fraud involves manipulation of a barcode on a return label to force the returned package. to either get lost in the system or redirected to any location near the intended um return address where it would probably be thrown out. But the shipper marks it as delivered because it was shipped to the right zip code. Um, and these scams primarily target companies who don't inspect packages before issuing a refund, uh meaning they issue a refund upon label scan and then they assume that the label scan means that the item was received. So let me break it down into little steps. Um the shopper, fraudster really, um, or the scammer, purchases an item with the intent to keep the item. They're never gonna pay for that, you know, the prodiges. They they wanna keep it. Um, they get the item, they message the customer service department asking for a return. They get the return label, the merchant provides a return label. Um then the shopper he's a professional refunder, a small fee. This is usually a percentage of the order. Every refunder will display how much it costs to do business with them, the order value that they'll um refund or the maximum order value. And they will The the shopper takes that returns label and emails it to the to the professional refunder after they they paid their fee. The refunder manipulates the barcode or sometimes the entire label, but all that's left is just the barcode. Um, so the package is going to show up as returned or delivered into the shipper system. And they know how they know how to manipulate these labels. Um, so the shopper keeps the item, takes those that pair of product shoes, puts it on the shelf, and then mails back an empty envelope with the manipulated label. Sometimes they fill the envelope with a worthl a worthless item of equal weight. So when it's returned and tracked, it appears to contain the original item like you mentioned before. Why do people put dirt into um return TVs? That's why. Um so the package is scanned by the shipper, the refund is auto-issued, the package gets lost in the system due to the label manipulation. The merchant never gets their item back. Um, and that's how the scam works. And if you think about the impact on the merchant, they've lost the value of the item on the order. Um, they have to pay somebody to process that return label. Um, and I don't even want to go into detail of how many hours it takes for the merchants to figure out what is going on. Um, I was on a call a couple months ago with a retailer um in the healthy cookware space. Um, and they were talking about what was happening and I said, Oh, that sounds like fake tracking ID. I'm like, this is how it works. Um and you know I I explained to them the exactly what we're doing over here, and they were like, they told me, you just figured out in 10 minutes what it took our team a month to investigate. It's it's not very obvious all the time. If you're not looking and you don't know where to look and what is considered unusual, it's hard to figure out. And it's and if you aren't looking, um it can cost. A lot of money, um, tens of thousands, hundreds of thousands of dollars in in in in some cases, depending on how long it's been going on and the average order value of the item. Um just to put things in context, like I I this stuff fascinates me and I watch these channels and I hear how everyone how they're talking to each other and I hear how they're so cavalier um about like hey I want the I want this item what's the best way this method that method um and and I watch these refund scammers um post their you know menu, if you will, of what what stores are currently working on. And some of them have maximums of $15,000 per order. So imagine if you're the retailer um and Imagine how much money is lost just on one order and they're gonna get many orders. Um so the losses can mount up really, really quickly if if you know merchants first no for one aren't aware that this exists. And number two, they don't know what to look for.
Speaker 2
Yeah, Kurt, this is the scariest part in my mind. I go upset at both, but like the the sort of this acceptance, this culture of acceptance around this type of behavior, and you're seeing it just become so far reaching where you know not only are they they uh you know, doing this, but there are people out there that are packaging these things up as either playbooks or actually like automated pieces of software to facilitate these things for you. And so and that it it makes it very hard. You know, you think about these like really advanced crime rings, and and there is some of that, by the way, also where they have call centers and they're managing all of this at scale through scale places. Like they're real enterprises that are are identifying fraud and making money this way. It's a criminal organization. That's actually easier. I mean, they're more sophisticated because they've got real investment, real, real energy into it, but they're actually easier to catch. The the part that gets really hard is when you're packaging up these playbooks and then you're distributing them to thousands, tens of thousands, hundreds of thousands, millions of people to take advantage as it scales, right? And usually you can close the loop. And then as Shoshana mentioned, I mean We we, you know, as a as a business, we scour the dark web. We kind of look for these pattern behaviors and trends. We do it on behalf of merchants. We also do it just broadly to understand behaviors, to stay ahead of these things. And uh it's pretty disheartening to see, you know, just how far reaching some of this stuff is. Uh there are ways to prevent against it and protect yourself against it. Some of those are technologies, some of those are partners, some of those are policy changes and procedural changes Um, so you can close the loop on these things pretty quickly, but everything has uh trade-off, has a pro and con to it, and you know, business owners really have to think about How do they want to communicate and manage this with their customers?
Kurt Elster
Recapping this on the returns fraud. The the item is is almost always going to be purchased legitimately. You're gonna get a request for a return. And on the request for return, you you're saying, okay, fine, and then you've no reason not to. And then at that point, all right, product swap is the most obvious. I'm either I'm I'm just not getting the item back unless they're really clever and it's like a very similar item or a replica counterfeit. Um I might maybe I do get the item back, but it's used. Wardrobing, okay, less insidious, but not great. But all right, so there you're like looking for signs with it. In apparel, you see that more. Um and then The real the one that just blows my mind, or uh, hey, um, I never received the item, so refund me. Okay, fine. Um, but the one that really blows my mind is manipulating the return label or Yeah, at a larger organization where they have like you just pay off a customer service agent who can issue the refunds. The manipulated returns label, that scares me.
Speaker 2
And again, you can set up systems to detect and track all these things, right? And we do. But it is hard. You can You can identify uh, you know, sort of bad actors from like consistent behaviors, right? We we you can monitor and see if certain shoppers have a higher propensity for returns and other issues coming out of that, like you can start to do those things. That juxtaposed with a lot of the sort of what I think are good good efforts to help improve and respect privacy for consumers. But you sort of you like you pull all this stuff together in this really complex storm that we're we're trying to navigate. And it's just really hard and the the sort of deck is stacked against the merchant at the end because every every system that's out there is built to sort of protect and provide for the consumer and even the platforms that a lot of merchants rely on to gain distribution, scale awareness, acquire customers and the like. Their primary customer is the end customer, the shopper, not the merchant, right? So, you know, they're they they make money on the merchant, but they don't actually cater to the merchant. So it's tough and and you know merchants really have to be vigilant and and work together. You know, we introduced as an example like a shopper network capability where merchants can report on shoppers specifically and so that we can through network effect identify bad actors at scale and make decisions and and allow e commerchants to try to make those decisions, right? So there's there's a we're doing everything we can to put power back in the hands of the merchants and and Defend them, but you know, and we're not alone. There's a lot of companies in in and around our space that are doing what they can to try to help e-commerchants, you know, run run businesses more safely, more securely. But uh yeah, it's it's wild.
Kurt Elster
Clearly, yeah, clearly, this is an issue, appears to be in an increasing issue, something people need to be aware of. Um, I want to move into what do we do about it next, but before we do, two points. Uh one The idea of the fraud as a service, that's scary. That's an eye-opener. But uh Shoshana, you sent me screenshots from Telegram of these. And it was like you know, the same tone and language as if someone was like, hey, I'll get you five hundred social media followers, like complete with emoji and and all that stuff. And that that was creepy. And that like you could see that It was an active channel. There were there were a ton of people involved. Um and the other one having insiders, that creeps me out.
Speaker 3
The insiders are very creepy. Um so many different people. Um You know, it could be a customer service agent that's just hit hitting like within the company itself. It can be an outsourced CS team that's very uh uh an any, sorry, a uh fraud as a service provider can bribe. It can be even somebody in a distribution center looking at the packages, looking for a label from a certain brand. Um, or it could even be like the local delivery people um opening up an iPhone, like literally just opening up a box that says it's coming from, you know, Apple or any other big brand, lifting up the tape, putting their hand in, taking the item back, and just closing it. Um, like you know, it it's anyone that has access to issue a refund or even touches the product. Um, it it can be so like the list of suspects is very, very long
Kurt Elster
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Speaker 3
I was like, oh my God. Another flavor.
Kurt Elster
Yeah, like, oh that one that also spooked me. But all right. So like for sure this this can happen when we're operating at that level of sophistication, this can happen to anybody. So what do we do about it?
Speaker 3
So the first thing is education. You have to know what's out there. So then when you're at step two, which is looking at your metrics, you know which metrics to look at. Um so educate yourself. Make sure you have that trusted friend, advisor, fraud company that is aware of these types of schemes. So if you're up against a wave and you don't know where to start, you have to have that person to help you. um that person or that or that organization. So that's number one. And then number two is look at your metrics. There are there are signs that this is happening. Um Increase in requests for refunds, that metric should be tracked very carefully. Increase in loss and stolen packages or missing packages, that's another thing that you should take a look at. be close to your warehouse uh managers or the third party provider that's that's you know doing your returns. Um make sure that they're not seeing anything funky over there. Make sure you have No, straw like open conversations and frequent conversations so you know what what is going on on that end of things Um, and figuring out the loopholes and how they're manipulating you and then shutting that down is the way to stop this effectively. And you know, fraudsters are um, you know, they're opportunists, but they also have m you know, money to make if you will. So once it's shut down and you and the merchant makes it hard you know, significantly harder to commit fraud, they'll just move on to someone else. And fortunately, there are so so many merchants out there with lax policies or or aren't educated on their vulnerability to fraud. They'll move on to the next victim. And while it's obviously not great that someone else is being ripped off, at least like the merchants not losing their pants,
Kurt Elster
The mistake I see merchants make is like I'll I'll tell someone, hey, you like we're setting up a store, we're auditing a store, and already you don't have any fraud prevention in here. Um, and like not even the most basic stuff. Like, you know, you could set up Shopify Flow to at least attempt to flag orders. And like they won't even have that. And they're like, hey you you gotta do something here. And they're like, oh no, that hasn't that's never been a problem in five years. And I'll say, Well, when it is a problem, that news spreads fast. And you'll you'll go from one fraudulent order too many. And you brought that up. But I've seen it. Um, and you know, I don't know if it's one person who's just like, all right, I'm gonna really hammer the store, or they're like, hey, you know, tell my friends. Um, but either way, like If you don't have anything in place because well, it hasn't happened yet. That's like, well, I don't wear a seatbelt because I've never been in a car accident. Okay. Uh it's uh not something you plan for.
Speaker 2
No, it's hard. I mean we we run into this all the time with with folks and and or you know they they put the other uh the other sort of side of that coin is they put systems in place that are far too restrictive and they don't realize how much money they're losing by having sort of a a a system in place that's blocking quality customers, quality orders because they've over-indexed or over-rotated to correct a problem that existed in years past. So Both ends of the spectrum are bad.
Kurt Elster
Um should I not allow the system where it's like, hey, we'll refund you as soon as that label as soon as we see the the label scanned in, should I always be inspecting the items I receive?
Speaker 2
In my my opinion, I I think I think it actually has to be less clear-cut than that. I I think that you have history with certain customers that are that are customers of yours for a long time and loyal. And I think you give maybe special privileges to those customers in terms of how quickly you want to handle and respond with those things and then you observe it. Um I think you definitely so you so I think you can I think you can be a little bit more surgical about how you establish policies and I think it's okay to do that. Um you can have a rewards program. Everybody wants to drive more account creation and and like direct customer relationships, why not think about that as a benefits package as part of those things, but then be clear for other customers in terms of how those policies are managed. You want to make sure you have tighter feedback loops on the back end to really study these things to Shoshana's point. Like you need to be pretty data driven, which for a lot of our merchants that are scaling is really hard. Uh, because you know, you don't have a lot of resources inside the business. You don't have a lot of folks, you're often outsourcing, but building relationships and making sure that your warehouse provider, if it's not yours, has a program for how they manage these things and that you're you're sort of spending the time there. Um you know, and again, to your point, it's one of those situations where it's not a problem until it is. Uh, you know, it's it's like experience. It's that thing you get right after you need it. And and unfortunately, you end up in a situation where You leave yourself open to attacks, which again, going back to what we talked about before, you know, you attacks used to take a long time to scale. They don't anymore. They happen fast now. They really move quick. And so you want to make sure you have something in place. You know, and if it's not an internal capability, Bring on a partner that can help you stay ahead of the curve, look at your policies and procedures, not just be a piece of software running in the background.
Kurt Elster
Give me some tactics here on on preventing this.
Speaker 2
Look at your policies. I I would not be a merchant that refunds um, you know, right away. I would I would wait to receive the package and have a policy that you confirm the receipt. You're still going to get it wrong sometimes, but you'll at least deter more of these players because also to Shoshana's point, like they want to make money. fraudstairs and they want to make it now. They don't want to make they don't want to go through the work, submit the fraud, and then wait two weeks to find it out. That doesn't scale for them. Right? They want to know. So Little things like that are simple policies you can introduce. Um, and you can see if it creates a lot of friction. You have to arm your customer service team. to be equipped on how to navigate like there's a narrative there that you want to be thoughtful about and manage because you don't want to lose business because you have a more arduous return policy Um so there's there's a balancing act, but you can easily look at that as a simple way to do it. Shishana and I probably have a dozen others.
Speaker 3
Um one tip that seems to work for professional renders refunders using the um INR DNR method, um, this is where, you know, the only way that they can get the item refunded is by claiming it didn't arrive. So one merchant started insisting on calling back the number on the order rather than any number that calls in and just provides an order, an order number. Um so this forced the CS agents to talk to the actual person that made the order. Well they are technically a fraudster because they bought the item with the intent to return it. Um, it does tend to hinder the process because all they want is like they don't want to deal with like having to do the work themselves. They just want the professional refund to to sweet talk or threaten. There's so many different ways. um the the CS agents to issue that return. So that does switching off that policy when a merchant gets a big spike in um item not received does tend to um does tend to work.
Kurt Elster
So all right, calling back but committing to the one that's on the order. Not do inspecting the items when they get returned, especi particularly if it's a new customer. Like if you want, you could segment between like You know, new versus returning customers. I think that's bright. Um you said uh no fraud has uh like a community list of like these are bad actors. How does that work?
Speaker 3
So right now when we give our customers the ability to report abuse, meaning that this customer is abusing and then there's multiple levels of abuse that we can push um to the system. Um meaning that the the merchant has the ability to share this information with not just themselves. So once their customer comes back, we'll have that information, but also to other merchants in the system who, you know, the the this abusive customer is going to shop on, you know, next week.
Speaker 2
Like so example, any an easy example would be uh we have a we have a a data set that suggests that this is uh an address or a or a user profile, shopper profile. that it has a lot of INR issues. I have not received issues, right? Uh outsized sort of number. Well we can we can actually require signature. on the package to be delivered or some other sort of proof. You could even you could even if you use a third party shipping protection company, you could you could require that they buy shipping protection. So you can do things, you know, to to do that. You again, our view of the world is we want to try to help our customers be informed about the the risks and the sort of ways to handle things and then be able to make decisions. for themselves on the risk profile they want to assume and how they want to handle it. Um and so those are those are things that you can easily do when you believe you've identified a bad actor, but you don't want to necessarily take a hard stance against them per se. You want to you wanna give people an opportun an opportunity. And then, you know, like we talked about at the beginning, straight fraud is easier to, you know, it's an illegitimate transaction that's easier to detect and block. It's hard to block some of these things up front. because they do show up as legitimate orders. So you need intelligence about that that shopper. And again, you want to be careful there. You know, there's a there's a fine line to walk between uh profiling and actually like you know being smart about scoring particular risk profiles and transactions. And then and then there's obviously like the downstream piece. And and by the way, your returns fraud is one of them, but the post-purchase experience is just rife with a lot of Issues. There's reroute fraud that's a major issue that's happening today where people intersect, they they take over a an account or a transaction, they they a legitimate transaction takes place. They log in and reroute the tracking, the package to a new location. Most merchants don't think about this, so they don't have systems in place to re-screen and block it. There's no intervention workflows that are automated. So it falls on the customer service person to see these things. And again, you just, you know, in a lot of these companies, especially mid-sized merchants that are scaling, even large, large organizations, you just don't have a lot of extra hands on deck. And so everybody's doing 15 jobs. And this is a world which is unfortunately very sophisticated, more so than it's ever been. It's nuanced. There's a lot of judgment calls and and it's it's a full-time thing and and it's not really a great place for merchants to to be full-time and how they think about it. So uh, you know, all the more reason to think about Partners consultants get them set up right at least out of the gates, like you you were describing, Kurt. And then um, you know, depending on certain stages and scale, they may want to bring in a a proper partner or a different type or or build out a team. But you know, that all happens over time.
Kurt Elster
Certainly this can happen to anybody, but I imagine and experience tells me that like some categories just are more prone to this. Like when we worked with like electronics drop shippers, um, you know, uh music drop shippers, or there were sound like instruments. Anytime it's like high high dollar discretionary hobby good. Yeah, it's that has that's easy to resell. That's that's one of the main tricks.
Speaker 2
Yeah. It has to have street value, right? It has to have have sex appeal in terms of being something that people would want and would be paying money for enough value there where it's meaningful enough to make money on it uh and something you can resell, right? It's hard to it's hard to move an oriental rug, uh, you know, the a room-sized rug. It's it's very easy to move streetwear, sneakers and such.
Kurt Elster
Or like you're selling radar detectors. Oh my gosh. Radar those people.
Speaker 3
Like the detractor here. Those are definitely the prime targets. But we have seen fraud in every industry.
Kurt Elster
That's true.
Speaker 3
Snacks. Like snacks that cost twenty dollars. T-shirts that cost thirty dollars.
Kurt Elster
Like just thinking of our clients, the one that that got hit the most was apparel and t-shirts and hats.
Speaker 3
Makeup like a less you can buy lipstick for 150 bucks, but like you can we've seen Frosters try for fifteen dollars. They're like, hey, it's a free lipstick, why not? I'll give for my girlfriend for themselves or or whatnot. We do see the gamut um when it comes to um you know when it comes to to fraud Some fraudsters also want the items for themselves. So they're like, okay, what do I need today? What's on my shopping list? Oh, I need uh a new, I don't know, a new soccer ball because you know my popped. Let me just steal one. Um so You know, to your point, just because you sell an item that's low value, it doesn't mean that you're not going to be a target. And if you think you're not a target, then you're actually a lot more of a target because you're not even watching.
Kurt Elster
Yes. Yeah. And that's what I've I've tried to tell people when they they downplay it. I'm like, no, no, no, just because it hasn't happened and you don't think it will, doesn't mean it won't. You can't hope it it never occurs. Um, so like, man, do anything to be proactive about it. What's what's your one piece of advice for like I'm a Shopify merchant. What do you tell me I need to do to protect myself here?
Speaker 3
Educate yourself on what's going on and what is out there and make sure that you're watching your metrics carefully. Um and if you see something suspicious, reach out for help. Trying to figure it out on your own. You can do it. Sometimes you'll figure it out quickly, but if it's not happening fast, then reach out for help to an expert Yeah.
Speaker 2
There are there are some really good, you know, sort of thought leaders in the industry uh that speak about the trends and the patterns and such for people to be just abreast of it all. I mean, it's not a fun topic to get into. Right. Uh it's not the thing when you're if you're running a company, you're not thinking about protecting this. But at the end of the day, it eats into your bottom line. You know, it's a hard enough business to to build a margin in. And you're giving up real percentage points of your bottom line here that that prevent you from reinvesting in your business or doing other things. And so, you know, it's it's an area that we we encourage customers to put systems in place up front. to think about the the software as a as a cost of doing business more than the fraud as a cost of doing business because I think the technology will will protect you. It'll keep you running in the most efficient way, meaning that you're you're going to block as many of the bad actors as you can, but you're also going to allow as many of the good actors as you can that a lot of old systems don't allow for. Um, but most importantly to Shoshana's point, you actually have somebody that uh, you know, kind of lives and breathes this area, thinking about it all day, every day. Because until you're So you're a very big organization, it just doesn't make financial sense to build out a whole team of experts. Um, and that's what it takes. And so uh, you know, we that that's always our advice for the sort of scaling merch, but get something in place, talk to your peers, talk to others that are a little bit further ahead of you, find out what they've been doing to be successful. Um check inside your communities and uh and don't wait for it to happen.
Kurt Elster
Yeah. Yeah, I think that don't wait. Yeah, do consider it, do anything about it, be educated on it so you can recognize it. Watch those those KPIs so that you can it it doesn't sneak up on you because it happens quick.
Speaker 2
Well and it shuts down your whole business while it's happening is the problem, right? Like it's basically all hands on deck when things hit the fan and you just you don't make any progress in any other area of your business when you're under attack like that.
Kurt Elster
Um it's stressful.
Speaker 2
Very. And and and frankly, like Psychologically, it's hard. Uh you know, it it's it's it's like getting in especially if you own the business It's like somebody somebody robbing you.
Kurt Elster
I mean it's it's really it's a Yeah, you're emotionally invested.
Speaker 2
It's a hard thing to accept, especially when it's at scale. Um and it's just it just honestly becomes such a distraction for what's otherwise like a a good business trying to build you know build itself up.
Kurt Elster
So all right, obviously no fraud can assist me with this. Tell me about it, tell me where to learn about it
Speaker 2
Sure. I mean No Fraud was founded by e-comm practitioners, folks that were running e-commerce businesses, uh, and just found that the the solutions that were out there weren't meeting the the need. And so went out to build a better version of that. And that that was our where we were born. If you zoom out in the e-commerce space more broadly, you look over the last 10 years, we've introduced almost a hundred thousand pieces of technology across data, personalization, automation, et cetera. To try to grow, you know, e-commerce, marketing in general. And during that same time period, we haven't seen conversion rates change at all. Right. Big big problem. Our our deep fundamental belief is that the bottleneck lives in that path to purchase, right? That that there's a real real bottleneck there. And it's death by a thousand cuts, but some of them run really deep. And even in the approval stage, after you've managed to get people to complete the checkout, you now have them not getting, you know, high approval rates because you've got certain fraud filters or preventions in place or other other things that take place or payment processors are blocking you, et cetera. So We really see the role less about protecting businesses, although that's obviously foundational, and more about how do we help businesses to sort of capture the bulk of value that they're trying to create for themselves. And so that's that's always been our focus. Um, and we launched last year, we launched a one-click checkout product, also in the same spirit of how do we help drive more conversion rates because we see 50 to 60% drop-off at the checkout. And so that's always been our spirit. But fraud and broader risk capabilities has always been and will always be an important pillar of what we do. Um you can find us at uh www. nofraud. com Uh and you know, we're happy, you know, a lot of our customers, the first thing we do, the first engagement we have with them is just an evaluation of their business. So we can run a test and we can show them what kind of fraud we're seeing and also what sort of value we think we can create and it's doesn't cost anything. It doesn't affect their business in any way. It's a really easy thing. And with Shopify customers in particular, it's very easy. Click of a button and they can they can get a data output. So we always recommend at least taking us up on a free assessment to give you some sense of the risks you're seeing and and steps you might take to to better protect yourself. And uh, you know, we're really proud of uh the thousands and thousands of merchants on Shopify that work with us and and we have a very high rating and it's because we take it really seriously and we care deeply about our customers and their success. So We'd love to talk to any listeners that that even just want a little bit more security to understand that they're feeling that they're in a good position. Um but there's a lot of great companies out there in this space, and we certainly just recommend not going it alone.
Kurt Elster
Uh thank you. Yeah, and your blog too, the No Fraud blog. There's a bunch of good good stuff in there. Um that I used for background.
Speaker 2
Oh, great. Yeah, no, listen, we we try really hard. We try really hard to just create content that people can use. And you know, it makes people a little smarter, a little better at at kind of building their business. So uh we always welcome good feedback too. So anyway, Kurt, thank you very much for having us on the on the show here. It's fun to talk about it.
Kurt Elster
Yeah, absolutely. Thank you both. Exciting, interesting, and terrifying topic. But that's that that's how you fight it is by disseminating education and information about it. So thank you. Thank you for doing the work here. I appreciate it. Thanks. Crowdfunding campaigns are great. You can add social proof and urgency to your product pre-orders while reducing risk of failure. But with traditional crowdfunding platforms, you're paying high fees and giving away control all while your campaign is lost in a sea of similar offers. It can be frustrating. That's why we built Crowdfunder. The Shopify app that turns your Shopify product pages into your own independent crowdfunding campaigns. We originally created Crowdfunder for our private clients. And it was so successful, we turned it into an app that anyone can use. Today, merchants using Crowdfunder have raised millions collectively. With Crowdfunder, You'll enjoy real-time tracking, full campaign control, and direct customer engagement. And it's part of the Built for Shopify program, so you know it's easy to use. So say goodbye to high fees and hello to successful store-based crowdfunding. Start your free trial and transform your Shopify store into a pre-order powerhouse today.
Speaker 3
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