Protecting your Brand from Fraud without Sacrificing DTC eCom Sales

Aug 10, 2021 1:00 pm2:00 PM EST

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Key Discussion Takeaways

Nobody wants their system hacked. But are you trying so hard to eliminate fraud that you accidentally alienate customers?

Avoiding fraud can be difficult. Customers expect fast, free shipping, the security of paying with a digital wallet, and seamless credit card approval. Unfortunately, unless your company is fully prepared to offer all these conditions, it can open up loopholes for fraudsters to jump in. How do you shut down fraud while still offering the best experience for your customers?

In this virtual event, Billy Restrepo joins Alison Ishii and David Fletcher from ClearSale to talk about avoiding fraud without sacrificing top-line revenue. They discuss best practices for card declines and chargebacks, the pros and cons of digital wallets, and new fraud schemes that retailers should recognize.

Here’s a glimpse of what you’ll learn:

 

  • David Fletcher talks about fraudulent trends in shipping, online wallets, and false card declines
  • Alison Ishii talks about why digital wallets are becoming more popular
  • Do digital wallets guarantee fraud protection?
  • How does a brand know if they have a problem with false declines?
  • Best practices for card declines and chargebacks
  • New fraud schemes that retailers should be aware of
  • Three tips for preventing fraudsters from hacking into your system
  • How does a manual review system work?
  • Are brands changing their fraud prevention strategy now that Q4 is approaching?
  • How does ClearSale handle fraud protection when a brand suddenly has a massive influx of orders?
  • Best practices for managing gift card fraud
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Event Partners

Guest Speakers

Billy Restrepo

Vice President of Enterprise Partnerships at BWG Connect

BWG Connect provides executive strategy & networking sessions that help brands from any industry with their overall business planning and execution. BWG Connect, in conjunction with BWG Strategy, has built an exclusive network of 125,000+ senior professionals and hosts over 2,000 virtual and in-person networking events on an annual basis.

Alison Ishii

Alison Takayuki Ishii

Director of Sales Engineering at ClearSale

Alison Ishii is the Director of Sales Engineering at ClearSale. ClearSale helps brands stop fraud, increase sales, and create a better consumer experience. Alison has over 10 years of experience in statistics and analytics, working with companies like Cisco, Facebook, and several consultancy firms.

David Fletcher

SVP at ClearSale

David Fletcher is the Senior Vice President of ClearSale, where he is responsible for international growth and strategy. David has over two decades of experience in sales, marketing, and entrepreneurship that give him a deep understanding of the role and challenges that today’s eCommerce businesses face. Before his time with ClearSale, he was the president of Imagine, President and CEO of Systek Corp, and the Vice President of Sales and Marketing for Pointe Technology Group.

Event Moderator

Billy Restrepo

Vice President of Enterprise Partnerships at BWG Connect

BWG Connect provides executive strategy & networking sessions that help brands from any industry with their overall business planning and execution. BWG Connect, in conjunction with BWG Strategy, has built an exclusive network of 125,000+ senior professionals and hosts over 2,000 virtual and in-person networking events on an annual basis.

Alison Ishii

Alison Takayuki Ishii

Director of Sales Engineering at ClearSale

Alison Ishii is the Director of Sales Engineering at ClearSale. ClearSale helps brands stop fraud, increase sales, and create a better consumer experience. Alison has over 10 years of experience in statistics and analytics, working with companies like Cisco, Facebook, and several consultancy firms.

David Fletcher

SVP at ClearSale

David Fletcher is the Senior Vice President of ClearSale, where he is responsible for international growth and strategy. David has over two decades of experience in sales, marketing, and entrepreneurship that give him a deep understanding of the role and challenges that today’s eCommerce businesses face. Before his time with ClearSale, he was the president of Imagine, President and CEO of Systek Corp, and the Vice President of Sales and Marketing for Pointe Technology Group.

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Discussion Transcription

Billy Restrepo 0:18

Afternoon, everyone, I'm Billy Restrepo, I'm the Vice President here at BWG Connect. We're a community of networking, knowledge sharing, looking to stay on top of the latest trends and strategies in the digital landscape. So when the topic comes up over and over again, we host an event like this. Our Goal is bringing peers together to share perspectives and insights, best practices and success stories. So before we get started, just a couple of housekeeping items. We want to be courteous of everyone's time. And we'll end this a couple minutes before the end of the hour. We also wanted to be really interactive, educational and as informational as possible. So please don't hesitate to jump in with any questions. tough ones, easy ones, layups, whatever, just go ahead and ask them or you can chat them to me or if you prefer, you can email me directly Bill@bwgconnect.com. We'll go around the virtual room here and do my best to get as many people involved and network and share some different perspectives. So that being said, let's jump into it. So we speak about 30 or 40. Brands a week consistently, your question around how brands can stay safe from fraud exposure, while not sacrificing top line revenue, and just as important, in some instances, customer experience. So we asked our friends and partners of the network over a ClearSale if they could jump on the line today and shed some light on the subject. providing some context and guidance in these ever changing times, especially as q4 is looming, what's really going to happen. So I like to say hello to David and Alison for yourself. How are you guys doing? A very good, Billy, thank you for having us. Good. Thank you. Great. Now, if you can briefly introduce yourself and give us a bit of background on yourself.

David Fletcher 1:40

Sure, my name is David Fletcher. I'm a Senior VP here at ClearSale been with ClearSale for a little over three years now. And have been really focused on the international piece of the ClearSale business, and helping our international growth and strategy as I am responsible for the rest of the world, except for Brazil. So we call it the rest of the world because that's everything but Brazil. So Alison, you introduce yourself.

Alison Ishii 2:10

Yeah. Thanks for having me, everyone. My name is Alison Ishii. I lead the sales engineering team here at ClearSale. Working together with David. Well, I have my backgrounds in statistics, and be with my career on analytics and 10 plus years, companies from Cisco consultancy and software, social networking and a couple of others consultancy firms as well. I have quite a long story with ClearSale and fraud. started my my story in ClearSale in Brazil, working with the banks, telcos, the biggest eCommerce in Brazil and left lived abroad for a while and came back to Brazil now to join ClearSale expansion team to the rest of the world. Since 2019, on a good time for the COVID pandemic to be closer to my family.

Billy Restrepo 3:09

It's time to get back into it right. So thank you both. So everyone, please feel free to jump in with any questions. Again, you can either chat them, you can raise your hand, simply ask the question, or if you feel a little bit more comfortable, you can simply email them to me, and I'll do my best to get them onto the team. So I know that you guys sent over some some findings that you want to share, I looked them over and saw some really, really interesting data points that I'm sure the audience will find interesting. So I'm going to hand it over to you, David. So he can kind of share some of those findings that you had

David Fletcher 3:37

a bit Bill, you're not gonna believe this because I can no longer share my screen. There we go. We can we can test and prepare as much as we want, but sometimes doesn't quite work that way. It doesn't. Alright, cool. So just give you an opportunity to take a look, I assume you can see my screen with our chart there. Okay, excellent. Um, we recently did a survey, where we talked to little over 5000 online shoppers. And what we really focused on were the regions that we're currently in in terms of our offices. So that's US, Canada, UK, Mexico and Australia. And we wanted a minimum of 1000 responses in each region. And what we found interesting here was shipping costs came up first. And you know, we work with a lot of companies and we help a lot of our merchants to not only protect them from fraud, but increase revenue, and really impact top line revenue and top line sales. And so you know, we're always looking into ways that we're helping our customers grow. And so when we started doing this research, and we saw the numbers initially coming in, and shipping, being too expensive, kept coming up, we were like, wow, this is something we really need to start sharing this with our merchants and whatnot. And so, you know, 69%, were dropping off because of shipping cost. And so, you know, we've looked into that, and we started sharing some more data and said, Okay, well, what are the best practices around that. And so we started talking to the merchants about having shipping information on every page, shipping information with each product, things like that. Now, here's the problem that every merchant runs into, we have this big merchant that sits off in the corner that offers a membership to get free shipping, and you can get it within one or two days. Well, that instant gratification is becoming the norm. And it's getting hard for for the rest of the merchants that don't quite have that infrastructure, or the different locations throughout the country to meet those needs. But it is becoming more and more important. And so, you know, that is something that that we definitely want to share, and we want to pass that along, is be more aware of shipping and know that most customers are expecting free shipping now. And they expect some sort of expedited shipping. Um, now the downside to that that's attractive to fraudsters. fraudsters know that companies that are dealing with expedited shipping, don't have a great deal of time to vet an order. And therefore, it's easier for them to get under the radar and get some fraudulent orders through. And so that's, that's, again, part of the reason why it was so important for us to learn about this and then begin to share it. Another big one that I wanted to talk about here is not trusting the site with my credit card information. And you know, when we start thinking about that, that's when we start getting into the wallets and digital wallets, and, you know, being able to get on to a website and make a payment with maybe my paypal account, you know, versus putting in all my credit card information. And that's becoming more and more popular. And we'll certainly talk about that today. Because that does impact conversions, for sure having the ability to to offer the wallets. And again, that also is appealing to fraudsters, because now they have the opportunity to begin taking over accounts and finding ways to use your information or maybe to hack into a merchant and get some information through those accounts and so forth. So

I think the other thing that's really important here that we like to talk about is my credit card was declined. So just under 10%, will will essentially abandon that order. Unfortunately, most of those declines are they're not the heart declines that that we talked about, from from the banks from a processor, their false declines. And the reason it gets on on this list is because that user knows that they have money available, they know the card is good. And there's no reason the card should not go through what cards get declined often. And sometimes these false declines end up costing us more than fraud does. It's actually a higher rate of loss when it comes to false declines versus fraudulent orders. And so that's a big one. And so here are a ClearSale, we talk about the false decline piece all the time. And I know we're going to talk a little bit about that today, because we're going to talk about chargebacks and false declines and so forth. But those are kind of the three highlights, if you will, from from this report that we wanted to share with not only our merchants, our customers, but with Billy groups like yours as well. Very, very interesting. Very, very good. Um,

Billy Restrepo 9:18

so just a couple of things just to clarify. So when you said you know, like utilizing digital digital wallets, why is that attractive for people that are worried about giving their credit card? So if you can just kind of illuminate people on that, you know, kind of maybe talk to like the Pay Pal protection program and why people are kind of thinking that's a safer Avenue. Yeah, for sure. Alison, you want you want to take that one?

Alison Ishii 9:38

Yes. Well, digital wallets are becoming more and more popular. highrock 2020, especially, that those contactless payments they grew by 90% in 2020 and 64% of of those millennials who use digital wallets, They, they have been going a lot. And the huge interest group for for the digital industry here. When it comes to fraud, why are those so so interesting? Because those are different payment methods that one many times merchants are not spending as much attention to those as the typical credit card transactions and for fraudsters, they are able to take action on those two use processes to fraud and for example, account takeover. That is it, there are more touch points where they can just go in and fraud use for fraud being account takeover on the merchant registration, also on the wallet itself, so and they stole data from from those sources. Yes.

Billy Restrepo 10:56

Got it. So which digital watches? Are you seeing, you know, kind of just growing and tender share? So obviously, PayPal has kind of been the old, agnostic, monolithic one that everyone knows about. But which ones are you seeing? You know, are you talking like Venmo? Those? What are you seeing out there is is actually growing?

David Fletcher 11:13

Yeah, I think the top four that we see would be PayPal, Amazon pay, Apple Pay and Google pay or G pay? Got it? Yeah, that's definitely the biggest ones. And it's interesting, because we were in a meeting only maybe two weeks ago, and talking with a merchant that had, you know, hundreds of 1000s of transactions that would actually go through digital wallets, per year. And they were still dealing with some issues. And it's like, well, you know, at one point that was kind of the safer route, because, you know, you felt confident you didn't have that wasn't a fraudulent order, you feel confident about the buyer, it was a faster checkout process, it was a good experience. And now it's getting a little bit more complex. And that's because we have other players involved. And now you start adding, you know, single sign on capabilities. And, you know, and I've got two different wallets that I use. And so it is starting to get a little messy. But I do think that as Google pay starts to take off, I think that's going to kind of bring some alignment back to that digital wallet market that we did have. But I do think that's going to force it to come back together. Got it? And of those four players,

Billy Restrepo 12:32

are they all have some kind of guarantee themselves? Kind of like how PayPal has PayPal protection? Do they all have something? Or does that fall on the merchant? Like, is it merchant of record? And they are they're responsible for for fraudulent charges that occurred?

David Fletcher 12:44

Yeah, I don't know the exact so that Alison probably knows better, but some of them do. Some of them have the coverage, like, you know, certainly Pay Pal and so forth. Um, but they still have restrictions. So it's not like all chargebacks are covered in certain chargebacks are covered. And then you've got your commercial disputes and things like that, you know, maybe an INR type situation that may not be covered. But But yeah, all of them dabble in it and cover some. But but certainly not not everything,

Alison Ishii 13:14

not unrealistic level. That's right. And to to add to this isn't even if the ones that do fraud management, fraud risk management, one one is that fraud prevention is not only learning about the fraud and declining the fraud, but especially balancing that with approving the good transactions, right. So it'd be easy to have zero fraud. If you decline everything, you have no business, that's not what you perceive as well, that's not good result. So you're basically sending that responsibility, the managing of that to an external PSP, who will then let's say, Well, if I see a risk here, I'll just decline that I won't take the risk for this, for example. So the intricacies of the incentives between the parties is very important as well. And from what we know, based on our experience, not only in the US, but globally. Typically those all in one, those fine tuning, those details are not all well aligned. Now, there's one price for all those type of things. They do not allow the flexibility for the fine tuning and for the final optimization to allow the merchant to actually manage and drive the results.

Billy Restrepo 14:31

Got it? Yeah, that's I was trying to get to see if they're, you know, are they a little bit more risk averse, because they obviously don't want to be left with that. That's a risk when talking about that guy got it. So kind of on that same vein, so I'll kick it over you, David. So how does a brand know if they have this problem with false false declines? How can you identify that?

David Fletcher 14:51

Yeah, it's funny, one of the first things that typically comes up we're talking with a merchant as you know, we're talking about some of their, their KPIs, their metrics, you know, give us an idea of what It looks like your approval rates, your chargeback rate and so forth. And every time we hear well, I really don't have a chargeback problem. Okay, well, then that means you have a false the client problem. And I love it when we get that look like, we don't like no, you probably do. And you should. It's healthy to have some chargebacks, you should have some chargebacks. And, and we say that all the time, even, you know, with some of our newer merchants, we say, hey, look, we want to have some chargebacks. Because, again, as I said earlier, the false declines cost more than the chargeback does. Now you certainly don't want, you know, a 1% chargeback rate. But we want to have some of those riskier orders that go through to avoid those false declines. And so, you know, we want to look at it from a couple of different perspectives, the chargeback rates, one of them approval rates, if the approval rate is very low, you know, that's certainly a red flag. And, you know, we always share with merchants, the typical approval rate within their industry within their segment. And that gives us some indication if there's false declines there. And anytime you have an increasing number of customer support calls, you know, when customer supports really busy with with the calls of, Hey, I'm having issues, processing my order, I'm trying to get this order, it's not going through those are, that means you probably have a false decline problem. And you're just lucky enough that they called to get some additional help to get that through. And I'll share a story with you I share this story quite often with with new merchants that I talked to. This past year, I had two seniors in high school, graduating high school and going off to college going to two different colleges.

Unfortunately, they found this bean bag that they loved, they saw it on Shark Tank, and they had to have this bean bag, not the bean bag that you and I may have had in college that costs $20 at the local Kmart or wherever. This was a $250 being back, okay. So I'm like, Okay, fine. I'm just happy you guys are getting out of my house. So get online, I'm placing the order I get the first order. I'm doing it. I'm like, you know, I can't put in a second, a second shipping address. So I'll just do the one order, send that to my one son to his college address. So then I go back in and fill it out again. Now I'm sending this one to another address. That one got declined right away. I thought okay, well, knowing that it's probably because of fraud risk. You're like, Oh, wait, they're gonna call me some waiting. phone doesn't ring still doesn't ring. Like I'll try it again. I jump in, go to place the order again. declined. So now I'm thinking okay, right, right. So now I'm like, Okay, I'm gonna call them. And I'm going to try not to sell to them, but I want to call them. And so I call them and I said, Hey, my name is David Fletcher, I was placing this order. I sent one to this address in Salisbury, Maryland. I sent this one to Towson, Maryland. And they're like, Oh, yeah, they've they've been flagged, like, okay, they said, Well, if they look fraudulent, agree, they probably do look fraudulent. But the issue is, I was a false decline. And here I am a good customer trying to spend $500, buying two beanbags, where I'm sure their ARV is is one beanbag and, and you know, they were turning my business away. Now, I wasn't buying it somewhere else, I wasn't going to go chase it down, I wanted to make this happen. So I could check the box and get it off my list. So you know, everything still went through. But it was very frustrating that I had to then take the time to talk to a customer service rep, to get them to understand to different colleges to different kids, before they finally let it go through. But had I not had the time to pay attention and make the phone call, I would have just filled them out and moved on. And I would have told my kids, Hey, keep an eye out for that beanbag, and they would have never shown up because they those orders would have never gone through. Right. And so false declines are very, very common. And that happens, you know, that experience right there. That happens all the time. You know, and that's why with our our service, our manual review team, you know, had then had them be a ClearSale customer at the time, it would have gone to manual review and the manual review team probably would have seen that I had children, they would have seen that. Even if they went to my social posts, they would have seen that. I had two kids just graduate two kids going to college talking about all that and it would have been approved that quick without any issue. And so again, it's just the those false declines are a slippery slope. Because it's real easy to say. I don't want to have chargebacks I want to avoid fraud. Well then nothing Got a bunch of foster clients that have to deal with it. That means unhappy customers, unhappy customers that talk on social media. And sometimes it's even worse.

Billy Restrepo 20:07

Yeah. So it's interesting, your story really parallel, something that happened to me, it's, I ended up not making the purchase. So really quickly, I was in Las Vegas, my wife and I had just built a house, I was at a trade show. So I was utilizing the Wi Fi from a Starbucks at the Venetian, utilizing a VPN. And I was ordering one of those next day matches, because my wife was like, we just moved in, and I need to place a sleep. So whatever she wants, she's gonna get I go out to make a transaction for the delivery to New Jersey the next day. And immediately it denies me and I know obviously, why it was happening. It was just because it was a strange thing, billing and shipping didn't match was a new credit card, we had just moved and I'm shipping it from an IP in Las Vegas, all the different things that that organization lost my business because I wasn't going to about stuff just didn't have the time to call. Customer, right, so ended up just going to another person. Luckily, they know the matches ended up being okay, and it was obviously another person, but they lost me as a customer. And in today's world, it's just you lose a customer, right? You know, you go from one to another, there's always a competitor that has something similar enough to just learn immediately.

David Fletcher 21:12

Yeah, that's a that's exactly right. Merchants work way too hard to attract customers. And you don't want to lose conversions. Because you know, as you're losing conversions, client acquisition cost is going up. And the more your acquisition costs go up, the the worse margin and the worse the appeal to the market. And so there's there's a lot to that, in terms of the impact of a false decline. And a

Billy Restrepo 21:36

little insult to injury. Think about it this way, if you paid to get that person to buy your items, and you don't allow them to write to go to your competitor. That's right. That's exactly right. That's right.

Alison Ishii 21:46

To add here, from the technical side, depending on how risk versus those, the prevention team for that merchant, as even David, if your wife tried to log into her account and use her credit card to ship to the same address, probably the device, the address the shipping address, some were already flagged, the device picked up on the recurrency rule, for example, and present as a high risk, probably the client of the holiday lost the two of you lifetime interesting. So

Billy Restrepo 22:18

it wouldn't just x out at the transaction x out essentially the family as potentially,

Alison Ishii 22:22

depending on how risk averse if they are, right. That's why I'll risk fraud risk management as one fraud, declining fraud or preventing, but on the other hand, is balancing with approving the good transaction. And there is a third topic as well on this triangle, which is the user experience, right? You have your your transaction declined right away. Well, in your case, they lost your business, maybe if they could have held it for a couple of minutes, maybe send it for a further review, apply some technology to it, like group analysis, retention, for example, to evaluate the transaction for a couple of minutes hours and approve them without controls risk, you would have a better experience and they would have you as a client and your lifetime value. Right. So sometimes invest in in that taking care of that instead of just opting for a heart automatic decline. Our experience shows that lead to best performance. Makes sense.

Billy Restrepo 23:28

Makes sense. So Alison, I'll ask you. So you know, these are all examples. But I'm assuming these were examples that were just somewhat, you know, outside of the pandemic. I know mine when I was in Vegas was before everything happened. We can travel there. What are some fraud schemes that retailers need to be aware of, since the pandemic? Are there new things that are happening during the times of COVID?

Alison Ishii 23:48

Yes, there are some Well, I, I have my sort of ClearSale for seven years now. But scarcely has been working in the fraud industry for 20 years. And so they haven't seen a lot and working in very risky markets like Brazil, Mexico, and Africa as well. So very creative strategies. So they have this in a lot. But we have seen some that are picking not there are super new for us, but they're picking example, the item not receive type of fraud, that type of chargeback being one that has been increasing the friendly fraud type of fraud. So well, I file a charge back saying Well, I didn't want to but someone from my family used it, for example. That's a chargeback. That's a first chargeback that the bank will not pay the merchant will refund the customer and still, if I'm lying, the merchant lost the item for example. That's something that has been increasing. And the the the chargeback that derives from account takeover as well. In January, I mentioned that as an example of strategies that use technology now. Just the standard, well, I have an access to a batch of stolen credit cards, and I'm using that from my computer, but some others that are using more technology to actually hack systems to have access to the accounts and that generating fraud and chargeback for. So having fraud strategies that are able to also identify those maybe a transaction from an email and account that I trust, but now shifting to somewhere else with strange behavior, you know, there's a very fine line mixes with the behavior a good behavior that David mentioned, but still being able to identify the two are the parts now?

Billy Restrepo 25:43

Got it? So for INR, right? That's kind of a tough one, right? I mean, like, how do you prevent that kind of fraud? Is it just by classifying the type of persona that that's making that transaction, you already know who they are, and then stop them from that merchant from transacting with

Alison Ishii 25:57

them? combination of three things. One is data, I think that's the most important part, right. So having an axis of a shared network of transactions, for example, not only from your own store, but actually transactions that have happened and other sources as well. So have been addresses devices that are known, used by fraudsters in other stores and now they're you applying a transaction to yours, for example, that's a one way a one example Another one is using technology, really, there are things that are that are behavior that machines can detect, using AI and machine learning technologies that a human being not necessarily would take longer to detect. So combining that with technology would be another one, building dynamic variables, models that are able to learn very quickly. And the third one, which is a compliment is this human eye to it, not only in terms of maybe, as David mentioned, having manual review, for example. But having an expert team of substations mathematicians to understand fraud and are able to validate the risk of those transactions and identify the behavior. That's a third point as well. So reviewing that aspect, asserts just a compliment, can help a lot in providing data for that team to study as well, instead of just waiting for the chargeback to come. That takes months if you have procedures to evaluate transactions not only declined and automatically, but also identify is that really good or bad, provides very quick and quality data for that type of dynamics. Got it?

Billy Restrepo 27:46

So let's talk a little bit more about that manual review portion. So So how does that work? What's that flow look like? And, you know, and why are they so good at what they do?

Alison Ishii 27:56

In my opinion, coming from? Well, I'm a fan of technology, right? If you look at my LinkedIn, my entire career was based on technology. And the human aspect of it is, is that well, I'll open here the the biggest it pack companies in the world, like the one I work for this conglomerate of social networks, the the IGF, these work for Facebook, and in their headquarters in Dublin. In Ireland, they they have a huge team of what they call community operations. For example, I was just looking yesterday, they have in total globally 60,000 employees. When I joined Facebook, it was like seven, and they grew a lot. And more than half of that headcount comes from community operations, what those are, those are people who are reviewing when someone flags a content that isn't appropriate, or something related to, to a hate speeches or anything, there are people there, evaluating those making sure and flagging like this is really inappropriate or not. And What's that for? Right? That's one to provide the best decision possible for the short time. Right? We want to take care of that specific request transaction, for example, in this case, but additionally, that's tribute data, good quality data for the automatic models to build, you know, so if they were just building models on top of bad data, the models would not perform as well. So that's the kind of the, the the good cycle that we were able to build when combining the two, right the the technology and also dopes whatever resource we have. In this case, we're talking about human interaction with those occurrences. When we talk about those That. So, manual review, it's a lot actually we call them manual sounds like Well, that's like a handcraft word or something. But actually, yes, there could be one to one transaction review, I especially with a specialist would open a transaction that is flagged as a risky one with the main data points available for them. And then they will be able to evaluate that transaction specifically. But additional to that, we have group analysis, for example, analysts who are not looking transaction by transaction, but are looking at books of transactions that share a certain behavior, behavior that could be Yes, beaut, by automatic models that are grouping transactions that share certain information or certain behavior, delivering to the same region, for example, coming from the same device. And they're showing that group of transaction because if you evaluate one of them individually, the risk may not be as evident as looking at the entire group together. Right. So we have that as a combination of technology. We have all the team teams as well. So for both individual reviews and group analysis, we have more experienced people evaluating if the analysts, they made the right decision, for example. So if the procedure was all correct for a decision, all that and also ultimately for the data quality chargeback classification teams as well. So you have a chargeback? Is that friendly fraud is that a real classic fraud chargeback is that well, a commercial disagreement chargeback, if that's a commercial disagreement chargeback, that customer shouldn't be penalized on a future transaction due to fraud risk, right doesn't make sense. So classifying make taking good care of all those details are all points that a manual review team, as we call it exists that we can simplify that way. That's all involved.

David Fletcher 32:00

Make sense? and Billy, just to add to that, because I don't want it to sound scary, like, wow, these guys are archaic. They're doing all these manual reviews, because because we've heard that before, right. And it's like, the auto approval rates for for most of our merchants are in the high 90s. Right. And so it's really, two to 3% of the orders that would typically have been declined, if you had an auto decline model, which we don't we don't auto decline anything, what we do is we flag them and put them into manual review. And that's how we're able to approve more orders and avoid the dreaded false decline. So it's not like 10% of the orders are doing manual reviews, it's much, much lower than that it's a very small percentage. And it's pretty much the all the orders that typically you would be declining. And and like I said, we're going to find ways to try to approve them, we want to give every order the benefit of the doubt. And that's why with the manual review model and the size of our team, and we we have upwards of almost 2000 people doing manual reviews, that's a pretty large group. So we're able to handle that, you know, internationally for all of our merchants. Got it?

Billy Restrepo 33:14

Now, do you adjust those thresholds based off of the merchant or the vertical? And obviously, there's price, certain verticals are a little bit more risky? Or maybe they're the price of their item is a lot more expensive, so there's gonna be a little bit more scrutiny and the appetite to take on risk might be different. Is that something that it is? Or just kind of

David Fletcher 33:31

Yeah, for sure, for sure. Absolutely. You are, you're 100% correct in that statement, and it's, and it comes down to, you know, the different segments, different industries, you know, we have an auto approval rate that we share with them, we say, Hey, this is the average in your, you know, in your space, the average auto approval rate is 95%, our average approval rate is 98%. And, you know, you can expect 2% to to essentially be going through that that manual review process, two to 5%, sometimes, depending on, you know, the time of year. And so yeah, it does change, but no, we, we like to talk about those numbers and share those data points. And and that's something we do on a quarterly basis with our merchants, to show them exactly, you know, hey, this is what your auto approvals look like, you know, the auto approvals came down because you had this fraud ring attack, and it's typically not one fraudster. Right? It's a group that that typically goes after the domain. And so you know, as we're identifying those, you know, that becomes a part of our presentation to share. And because, you know, if you just looked at a chart and said, Well, what happened to ally auto approval rates, but they came down because of these fraud attacks, and all these orders got flagged. And so we began to do our analysis, and now we can begin to identify them faster. So we fed that back into the model, and then we get the auto approval rate right back up, right So but yeah, you in terms of different segments, it is different. It's it's absolutely different. And yeah, he's talking about ATVs we work with some jewelers that are selling, you know, $20,000 watches. And you're right. And so, you know, the smallest issue there my flag that order to give it a quick review. So but yeah, that's definitely something to keep in mind. It's not, it's definitely not one size fits all.

Billy Restrepo 35:23

Yeah, that makes sense. Yeah. Cuz I can assume if it was one size fits all, it would just be archaic as Yes, exactly. That's right. That's right. Got it. So that grouping that you said, though, the analysts that kind of do the clustering of the of the model, I'm assuming are looking at that. So for fraud attack or a ring occurs, they're taking that information. Now, they might lower the approval rate, but they're utilizing that information so they can rebuild or retrain the models as they prove we can go up without this kind of like little outlier of fraud. Now that has been identified. Yep, that's exactly right. Good. All right, good. All right. So um, let's switch it up. Now that q4 is kind of around the corner. So I'll go to you, Alison, with us. And so what's your brands do in terms of prevention? Or, you know, maybe are they changing their strategy for the upcoming holiday season, give us some insights that the people listening can actually take away?

Alison Ishii 36:12

Yes, as well as fraud risk management plays a key role in the final and dibala bottom line results of an eCommerce store. And the holiday season as impact cost of chargeback user experience. As I mentioned, the ultimately the approval rate, right the revenue generates and the holiday season having a such specific customer behavior as well. The Yes, specific strategies are recommended example of facts that should be considered, for example, in those holiday seasons, we are expected to see much higher recurrency from the same group of data, right, so the same person buying different stores much more frequently than typically would, for example, if you have the same decision criteria, as in a regular season, afford that that's recurrence, it could increase the risk of those transactions, and you would just start declining those, you need to have something dynamic, smart enough to adapt to that specific behavior. Another example is something like David mentioned. And now in the pandemic's that increased as well, people buying, I buy things now from my home, and to ship to my mother in another city, for example. And so that type of behavior is well expected as well. So specific strategies are recommended. One thing overall that we see is that the, the, especially in those moments, that triangle, I mentioned, controlling fraud, but also approving, providing good customer experience that approving more aspects is much more important, especially important in this period, because the proportion of fraudsters they will not grow as much as the proportion of good customers coming to your store. So being able to approve those and fulfill those transactions is kind of the focus for that period.

Billy Restrepo 38:23

Got it? Got it. Okay. Very interesting. So I guess just out of curiosity, since I've kind of seen this, and I saw a story that that popped up, right. So there's, as certain organizations do, what are the cold like these drops, it's very similar to, it could be like a sneaker drop, which I think the story was based around that. It's just this massive influx, but it's not tied to the traditional holidays. It just happens. How do you guys work with that? How do you guys handle that when they're all sudden, just like a normal merchant that's kind of flat? Well, not flatline. But it's just normal. And then hockey sticks in terms of volume? How do you guys rectify that, and not decline all bunch of stuff, because all of a sudden, you're getting hundreds of 1000s of orders?

Alison Ishii 39:01

Yes, I can tell you, David, the, the, again, those strategies that are dynamic and flexible enough and experienced right, to, to know how to behave, how to just in those moments. So we have the experience working with different brands, who run those types of things. And, of course, knowing in advance, working closely with the merchant and knowing and fast, that's super helpful as well and add that additional to that being able to have in models that accommodate that type of risk having. Again, the turnaround time to learn if a transaction was good or bad, you should just decline a transaction automatically and you need to wait for the chargeback to come. That's too long. That's month. But if you have procedures in place that transaction happened now, in a few minutes, hour You know, because you've applied further reviews, if that transaction is good or bad, you are able to estimate the proportion of good transactions versus bad in this increase of in this peak of transactions, right? So then you know, well, is this a bot, just testing cards in my my store here. So transactions, I should decline or are those good customers that are coming, and they should have should be approving those transactions. And the risk ultimately is is is low. Because you applied those further methodologies to assess risk, not only relying on the chargeback to come back, you know, in hours days, so then you are able to build methodologies, solutions to models to quickly adapt, for example, additional to that, if you have a team of if you're applying manual review, definitely our customers take advantage of this 2000 people specialist, as David mentioned, because those peaks do not happen all the time, right, in some moments of the year, like the Singles Day in China, the playing field in Mexico, the blackfriday. Globally, they do concentrate. But in general, they're happening in different moments of the year. So that's an optimization, our our team does as well, and those as well. So they had come for data training, the onboarding for that, that's something that we are managing for our merchants, they did not worry about that they're scaling growing, we do our projections, and we adapt accordingly. They don't need to worry and spend more for those moments

Billy Restrepo 41:44

that you mentioned, you had some experience with that, are you able to share any of those names? up top, but someone asked Did you pass that?

David Fletcher 42:00

Actually, we can, we can share, we can share two of them. Because the one we actually just finalized a marketing contract with one of them is Telfar. And just to share, you know, a story about that experience with them is when we started working with them, you know, we were doing the just the typical sale, if you will, they'd have their normal, you know, a weekend sale or some special event and so forth. And then they started dabbling in Flash sales. And they say, Hey, you know what, we've got some, some limited edition products, we want to do some flash sales, and we said, Hey, great, let's, we're going to start preparing for that. And so we didn't want to wait and say, hey, let's see, you know, what the approvals and chargebacks look like from the last three months, three months from now, we want to do it now. So we did a lot of extra work a lot of extra research. Now our data scientists team where we're putting forth a lot of additional effort so that when they ran this flash sale, we would be prepared to have the highest auto approval rate possible. And so what happened was, in one hour, they did 14,000 transactions, and our auto approval rate was 98.7%. So we had already on the back end, we did our due diligence, and we're prepared for that. And, you know, they went from doing, you know, typical our might be 200 300 orders to all of a sudden we have 14,000 orders. And so but that was those are, you know, that's plants, right? Just like for Wayne theme Singles Day, you know, Black Friday, we plan for all of that. But we have some merchants that have these flash sales and you know, they're one of them essences one of them, we have a shoe manufacturer that that one I can't tell you, but they they do something very similar. And so, you know, that's kind of how we, you know, we prepare for those and we're successful at doing that and helping our merchants you know, really grab that that revenue opportunity as best they can.

Billy Restrepo 44:08

Awesome and appreciate you going on the spotlight. I know it's tell me that what's gonna happen, Billy. So here's another question that came in so and it's directed to you so someone likes you my store has seen an influx of gift card fraud the past year, what are my options after it happens?

David Fletcher 44:29

Interesting. So this is such a hot topic. I actually just did a news channel report in Boston Friday night, I was a guest to talk about exactly this because, you know, it's more and more popular. Yeah. Yeah. Thank you. I will have eight by 10 autographed pictures available later today. Yes, so, you know, there's there's a couple of issues here because there's different strategies from a fraudsters person All right, so we've got the online strategy. And then we've got the in store strategy. Two different strategies. And I think did you ask me Billy about the in store?

Billy Restrepo 45:10

Is that what you're asking me about? So they're seeing an influx of gift card fraud? What are my options after it happens?

David Fletcher 45:17

Okay, okay. gift card fraud against gotcha, gotcha, gotcha. Yeah. So So after it happens, it's tough, because, you know, it's already happened. So the key is, how do we keep it from happening, because gift cards are difficult to trace, there's not a whole lot of tracking available, right. So any john doe could have a gift card and do something with that gift card. And it's really hard to track it back to a fraudster. And that's the appeal. And so they have strategies such as, you know, placing an order with a stolen credit card, having it shipped to the credit card holders address, but then calling back to cancel that order, and getting it refunded with a gift card, and then they get that gift card. And now that is what they consider clean money. Right? So I've got this clean gift card that I can then go sell or I can buy other products, or whatever. So, you know, once it happens, the best thing to do is to try to track it back. See if we can't find a way to get back to that data point, get back to that transaction. And that comes down to the merchant, how they're they're doing their gift cards, if they're doing it themselves internally, or if they're outsourcing it, or outsourcing to third parties is becoming very popular now, for the gift card portion of a business, which I do recommend considering that because a lot of those third parties have policies in place, and they have better technology to help track it. And you'll have that loyalty program and have the points, accruing the points, the points and being able to identify a gift card, how it was used, when it was used and things like that, that most merchants don't have that. That's just kind of out of their scope today. They're just not there yet. So that's a big part of it, being able to track it, and then put prevention strategies in place. And what I mean by that is I gave you the example that a fraudster uses a stolen credit card to make a purchase and then cancels it. Okay, fine, we're going to cancel that order. But there's going to be a delay between the time you get that card and so forth. Knowing that that is a fraud strategy that should be flagged, and there should be some due diligence on the owner of the merchant rather, to try to, you know, maybe get in touch with that credit card owner or something along those lines, subsea to validate that. So those are some of the things that that can be done today. Sadly, gift cards are a huge target right now. They are a huge target as his account takeover for the loyalty programs. And part of that is because they haven't received as much attention on the merchant side. And they're starting to now because merchants larger merchants realize that's a weakness, that is definitely a loophole into our system for fraudsters. And it's starting to get more attention today, which is a good thing because it needs to, because you know it for a fraudster, you know, they don't go to local stores and get gift cards right off the shelf. And, you know, they have the ability to do that. And you get that data and they can spend that gift card. You know, before the the the rightful owner even gets home with it. So, yeah, that's that's like I said, that's become a really big target for fraudsters. And obviously, for us, it's a big target for us to identify and battle.

Alison Ishii 48:57

To do that, it's funny, David, because the the I don't think I've ever told you this, but the is gift card coupon type of fraud, that that's something that we have been seen in Brazil for like, six years in the past, I remember when we started seeing those types of strategies. And and we were like, what's happening here, and then we understood what was happening, like creating this difficulty of not inputting a payment information there, but using a coupon and kind of this type of things. And you're correct, tracing back is something that helps like the first action to take to prevent further future. Losses would be that and when tracing back doesn't mean only well the account, for example, but applying technology as well, right applying like device identification, things that the fraudster cannot tweak as easily. You know, so well, this transaction That generated the chargeback using the coupon was generated by this device. Are there other transactions coming from the same device? For example? Do I have an address hashing technology? So meaning? Well, if I type my address with small tweaks, do I have a way to unify those and treat them accordingly? Even if the person types have slightly different? Am I able to group transactions that share the same address and then identify a new group? and see if there are other transactions using that same shipping address, for example? So that suits what the fraudster wants, right have access to the product for liquidity?

Billy Restrepo 50:45

So you're saying you're focusing on the payment instrument, but actually the transaction instrument itself?

Alison Ishii 50:50

Yeah, exactly. In all the other data points that you have available, take advantage of all those traces back understand this strategy? What's happening? Or where's the opportunity moment that the prospects taken advantage of? Is it really because it's too easy to purchase something councils transaction get a coupon? Or are they buying a gift card with a payment method that is frauded and then converting it into a future transaction with a riskier item? For example? learning to strategy at them applying these

Billy Restrepo 51:27

makes makes total sense. Alyssa, or did you want to did you want to jump in? Maybe she unmuted herself by accident. Alright, well, either way. So I see you actually, we're getting pretty close on time here. So I want to jump in quick. And before I kick it over to David and Alison for some takeaways, once a quick thank you to everyone who dialed in, and everyone was able to jump in and share their perspective. So if you're looking for more information on this, I would 100% encourage you to set up some time with the teams over at ClearSale. As you can see, they're definitely very, very knowledgeable in this and there's some incredible information that they could share. They come highly recommended from a ton of brands in the network. It's definitely worth setting aside 30 minutes with them to learn more about how they are helping organizations today. And with that, I'm going to kick it back off to the ClearSale team so you can get some key takeaways.

Alison Ishii 52:16

Good. Alison, if you want to start that I'll wrap this up. Okay. Yeah, from the technology side, I'll say that, yes, the solution for fraud do not take it only as I need to prevent fraud, there are much more involved, we say accuracy of that. decision makers should have the bottom line cost of fraud in mind, in making decision for strategies that we'll be applying. So not only preventing the chargebacks, but also having a look on the approval rate and customer experience as well. The second part that I would highlight here is this importance on in on the strategies applied whatever it is the value of the combination between technology and the human capabilities, right? Being that analytical study, statistics, and also reviews as well, in some cases, the resources there many times, it's cheaper, just cheaper than waiting for a chargeback to come. And then I learned about it, then I have the data, you know, many of the high end tech companies in the world are, are building those teams and taking advantage of those who have those as well. I guess though, being me as that phishing attack person, I would highlight that as like, take advantage of the human capabilities as well. Not only technology technology itself, it will serve as garbage in garbage out, as many said today. So have that in mind.

David Fletcher 53:57

That's awesome. So I'll I'll be real quick since Alison took some of my time there. Alison, I'll never let you go first, again, in our fireside chats, but that's okay. So no, in all seriousness, you know, one of the things that that we really wanted to focus on and this was talking about the the abandonment rates, talking about, you know, issues with checkouts and the impact of false declines. And, and I know we're we're limited in time to be able to share as much data as we would like to we have tons of data, you know, even talking about the digital wallets, and the gift cards, and increasing conversions. All of these things can be found on our website, you don't have to actually talk to someone at ClearSale, you can just go to our website, we have a number of blogs, reports, white papers, all kinds of pieces of content that could help you with some of these topics. So if you attended this today to learn more about it, we weren't able to get to it. By all means please hit our website because there should be content there. Addressing All of these topics and many pieces of content for each topic. And of course, you can certainly reach out to any one of us, Alice and myself or anyone on the clear cell team to talk more about any of these topics or just fraud in general. So, Billy, thank you.

Billy Restrepo 55:16

Thank you guys. So is that report that you have available on your website? Or is that something that maybe we can proactively send to everyone as well? Because I read it and there was some really interesting stuff there.

David Fletcher 55:24

Yeah, that is a new report. We just did that this year. And I do believe it is either on the website now or will be on the website this month.

Billy Restrepo 55:32

Got it. Got it. All right. Great. Great. Well, thanks again, David, and Alison for your time and expertise. And thanks to everyone who dialed in. I hope everyone has a wonderful rest of their day in a fantastic week. Great. Thank you. Thanks, guys.

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