In part two of our conversation, Bruno Farinelli from ClearSale gives merchants advice on how to sell in risky markets, avoid chargeback induced PR nightmares, and avoid the most common mistake he sees that leaves organizations open to fraud.
Bruno Farinelli is the Head of Fraud analysis and data science teams at ClearSale.
Bradley Chalupski: Hey everyone. This is Bradley Chalupski, co-founder and editor-in-chief at MerchantFraudJournal.com. And this week, we have part two of my conversation with Bruno Farinelli, head of fraud analysis and data science teams at ClearSale. And he’s going to be talking about how to sell in risky markets, fraud-induced PR nightmares, and the most common mistake he sees merchants making that leaves them open to fraud. It was a great conversation. I really appreciate Bruno coming on the podcast. Be sure to check out the first part of the episode, if you haven’t already, so that you can move into this one smoothly. And as always, you can get the latest merchant fraud tips and tricks at MerchantFraudJournal.com.
Bradley Chalupski: Other question that I have is, I think, the one that, unfortunately, is asked a lot, which is, it seems like, in this particular instance, this was all enabled because of a high risk and low tolerance for law area. And I know that this is a major area of concern for a lot of merchants. You’re talking about possibly inside jobs at the post office. You’re talking about information being randomly placed onto envelopes, and people just getting it there either way. Things that might not happen in other jurisdictions and other areas. So, I’m curious what your take is on how merchants can prevent and strike a balance with selling into these markets while also protecting themselves. Because, obviously, Brazil is a huge market with a lot of money to spend, and cutting yourself out of that market – wholesale – just not selling there – is going to cost you money. So, the question becomes, how do you strike that balance where you’re in those markets but still making them profitable despite the barriers that might be there. So, I’m curious to get your perspective on that; both being a Brazilian national and also working in the industry.
Bruno Farinelli: Even though it’s been five years that I don’t actually analyze anything from Brazil, what I can tell is that the fraud rate in Brazil is 2%. This is higher than what we have here in United States, almost two times higher. But you still have 98% of good customers trying to buy something from your website. So, you definitely don’t want to miss out on that. And while you’re correct that the laws here allow fraudsters to do a lot of things they wouldn’t if there were more strict law places, the reality is that it’s hard to count on the law to make fast advancements. Those things are not going to change from one day to the other. We do hope for a future with more oppression from merchants, from ClearSale that fraudsters are going to be prosecuted more seriously. So, the way for a merchant to deal with this right now is to actually invest in fraud prevention. There are several technologies, companies – outsource it or not – that can offer you very good insights when it comes to Brazilian transactions. And ClearSale is simply one of those companies, but there are several there. And there are several sources of information out there as well. But understanding that fraud is a local problem is the key. The way to analyze a transaction from Brazil, it’s totally different from the way to analyze a transaction from the United States.
Bradley Chalupski: Give me an example.
Bruno Farinelli: Whenever you are analyzing a transaction and you’re opening a Google Maps to see the address, the way you’re going to interpret that address if it’s low risk or high risk, it’s going to drastically change. And I can tell you that because we have analysts in the United States and in Brazil. So, we see the difference in their evaluations every day. What someone for United States might believe to be a high-risk address in Brazil. If a Brazilian analyzes, he’s going to say, “No, this is okay.”
Bradley Chalupski: I have another question, which is that I’m curious if you’ve ever had to try to convince a merchant to enter into a market that they perceived as being high risk, or to increase their activity in that area where they were really adamant that they just didn’t want to go into that kind of a market. And if yes, what’s your advice to them was or how you were able to convince them – if you were – to enter that market.
Bruno Farinelli: Several times. And I don’t even need to go to another geography to give you this example. We have an example on our day-to-day in United States, which is AVS. A lot of our clients have AVS filters in place and they might hurt your revenue. What we find here at ClearSale is that the percentage of orders that an AVS filter would decline is really bad. It’s something around 5% to 10%. So, you’re losing 90% of good orders. And in the end, you know that a lot of customers nowadays don’t want to have the work of giving you an actual billing address or shipping address. They might not be updating billing addresses through their bank. So, there were several instances.
Bradley Chalupski: Are they doing that? Because I want to make sure we stay focused on geography. And if there hadn’t been any instances of this, that’s fine. But I’m curious to know if you’ve ever had a customer come to you and say, “I want you to turn off orders to Brazil?” Or that it’s when you’ve said like, “Why aren’t you selling to Brazil?” They say, “Well, that’s a bad country to sell to.” And what’d you say to those people and what those conversations look like? And if you were successful in getting them to change their mind? And if so, how? And if not, why not?
Bruno Farinelli: Yes, this also happens a lot, Brad. In most of the cases, we were able to convince them. But our product works very well when it comes to this. Because one of our flagship products includes a chargeback guarantee. So, whenever I’m telling them, “You can ship to Brazil. And if there are any faulty orders that are approved, we are going to go for you.” It makes easier for them to dip their feet in the water to see how it’s going to go. But in all of those instances, the results were successful.
Bradley Chalupski: And I imagine the hesitancy there – even with the chargeback guarantee – is because they’re worried about their approval rates, and they don’t want to get put on the blacklist for getting too many declines. So, how long does it usually take for them to overcome that fear and to see that with the right technology, and the right filtering, and just the right approach that you’re able to allow them to sell without getting close to that threshold? Does it take them a couple of days, take a couple of weeks?
Bruno Farinelli: It depends if he’s already declining. If there is a recommended demand there – so, orders that he’s declining because of this – the efforts are going to be instantaneous because we had some cases in which a client saw a 10% increase on his revenue from one day to the other because of this. As I said, Brazil, we have a lot of money. Brazil is a country that has a lot of money, a lot of people wanting to buy. And some products are very trendy in Brazil. And depending on what you’re selling, it might be very attractive. So, in this case, he was already declining a lot and we could see that a lot of those were actually good orders. In other cases, after three months, an e-commerce realizes that the chargeback levels coming from Brazil, they are in existence or very low and under control, and they understand that even if it’s on a lower percentage, it’s simply a safe revenue stream.
Bradley Chalupski: So, we’ve been talking about a couple of different options. I think we can go for the three – people like things in three. So, let’s go for one more, even though we only have a couple of minutes left – another instance for us to talk about.
Bruno Farinelli: Another one that I really like is when the fraudster is pretending to be a reseller. Did you ever hear about this one?
Bradley Chalupski: No. That’s a new one.
Bruno Farinelli: So, fraudster is going to reach out to you; Facebook, Instagram. He’s going to be, “Oh, I’m a reseller for Store ABC, and you can buy with me, and it’s gonna be cheaper.” If you’re innocent enough, you’re going to believe him and then he’s going to be placing orders using all the information but obviously a stolen credit card – so, it makes easier to catch. But still, let’s assume an e-commerce would be calling you to verify that – you place the order and you would be confirming that it was with the Store ABC because an agent from the store called you.
Bradley Chalupski: What’s interesting to me about this is it’s extremely forward. It’s talking directly to the person. I don’t know that I’ve ever really heard of this type of an attack vector before from a fraudster where you have someone who is calling up the person and asking them to take their credit card details.
Bruno Farinelli: No, the fraudster doesn’t ask for the details of the credit card of the person. He’s going to use someone else’s credit card, but he’s going to buy for you and you’re going to pay him directly, without your credit card. You are going to send money through Venmo for him.
Bradley Chalupski: So, the scam is that you’re basically telling someone that you can get it for them cheaper because you’re whatever – whatever story you come up with.
Bruno Farinelli: In this case, the fraudsters counting with the innocency of whoever he’s talking to. But if you search on dark web, even on Facebook, you’re going to find sometime fraudsters that they are simply offering their services like, “Tell me, what do you want to buy and I’m going to buy it for you, and I’m going to sell it for cheaper.”
Bradley Chalupski: So, in this type of a scam, I guess, it’s really preying on people who feel like that they can get one over on the system and end up getting something for less than they normally would have paid for it. I’m curious on the merchant end. I guess, it doesn’t look any different than a different type of fraud, would it?
Bruno Farinelli: No, it wouldn’t. the only flag that a merchant would need to be careful with is if there was a phone validation process. Because if you call the customer, he might be simply saying that he bought that because he innocently believes that he bought that from a representative in some cases, because he understands what’s happening but he still wants to get it cheaper. So, he’s clearly being an accessory to fraud.
Bradley Chalupski: I hinted at this before but I’m curious with this one specifically. Do you hear stories from merchants that their customers, or these people that are getting scammed, that it gets out into the community? Because the danger here from a merchant perspective is that somebody is going to go on Facebook and say, “Walmart called me to see if I had placed this order, and it was a fraud, and why didn’t they stop it?” Even though obviously, from Walmart’s perspective, it’s really difficult. And they’re just calling up and saying, “Did you place this order?” And people are saying, “Yes.” And they think that they’re getting one over on the system. But I’m curious if merchants take this threat seriously and if you’ve ever heard of any instances where there’s been a PR nightmare that’s come about because somebody put something on Twitter or Facebook that this merchant called, said, “It was okay,” which of course, is not what they’re really saying, they’re just asking to follow up. But that’s not how it’s going to be interpreted by the person getting scammed. So, do you see stuff like that with merchants going on?
Bruno Farinelli: Yes, obviously. The biggest PR cases we saw were related to decline orders that shouldn’t be declined. But we do see these cases eventually because the defrauded customer is going to be very upset. And some might understand that they can release all of their upsets with the bank, that also was a party that could have intercepted this action. But some of them, they’re going to be upset with the merchants because, in the end, they’re going to have to go through all the make-a-new-credit-card process. And if you have subscriptions, you have to update all of your subscriptions, and so goes on. So, they’re going to release their frustrations in the merchant. And indeed, the merchant couldn’t have the power to avoid that. Wanting or not, it’s one of those costs of a chargeback that they are hard to measure. But they’re definitely there. Right?
Bradley Chalupski: Yeah, for sure. Because I can definitely see how people would be very upset because then you’re having an interaction with the business. So, now you already feel like the business is somehow giving its blessing to this transaction because they’ve contacted you. When, obviously, that’s not the case at all. But the internet doesn’t care about that. Once you jump on Twitter and start saying, “This person, this merchant, yadda, yadda, yadda,” it can quickly get out of hands. And then somebody else says, “Oh, yeah, I had an issue.” Even if it’s a different type of fraud, they might say, “I had an issue.” And then all of a sudden you have this snowballing effect of negative social media presence, which companies do not want. So, it’s definitely something to consider. What would be a best practice? Obviously, you’re calling to verify should merchants make a habit of asking people? Did you do this through an online interface or an exchange? Or is that too intimate? And you find that turns people off and it’s not worth the trouble for the business?
Bruno Farinelli: We are very restrictive when it comes to the actual necessity of making phone validations and the rewards that might come. But in this case, when we had a similar case, in the past, it was from an airline company – a fake tourism agency trying to sell tickets. The question we made that made it all clear is simply to confirm the amount that was paid in that transaction. Because then that customer would give us usually the discounted amount and not the amount on the transaction itself. So, when we realized that a lot of customers were giving half of the amount that the transaction was actually worth it, we realized that there was something wrong. So, those are the cases that you need to call. Obviously, we work [16:42 inaudible] clients. So, they could be calling those customers to explain that they were scammed, just so they could know that they didn’t buy a ticket from that website exactly but from a fraudster.
Bradley Chalupski: So, what are those conversations like? They must be super interesting.
Bruno Farinelli: The ones to let them know that they were being frauded by a scammer, I never participated, sadly. The hard ones are the ones in which the customer knows what’s happening and he still wants to mislead you because he’s committed into being an accessory for fraud, those are the hard cases. Sadly, you have seen a lot of examples nowadays of open doors to customers that want to commit fraud, like return fraud, promotion abuse. A lot of things that a customer can be doing if he wants to profit out of website.
Bradley Chalupski: Yeah, I’d imagine that those are really difficult conversations to have. And then if you find out that the person, I guess, was in on it somehow was what you’re suggesting, that would probably be even more difficult.
Bruno Farinelli: Because then this person is going to answer the questions properly.
Bradley Chalupski: So, you’re saying they’re going to answer the questions properly and then it’s going to make it that much more difficult.
Bruno Farinelli: Yes, exactly.
Bradley Chalupski: Well, Bruno, I really appreciate your time coming in. It’s amazing. We’ve already been talking for half-hour. So, I really appreciate you sharing all these great stories. And I’d love if you want to give kind of a last word on how you think merchants could be doing more to prevent fraud right now, maybe one tip or one thing that you see very often that allows for these types of really off-the-wall types of scams to be successful, and what merchants can be doing to change their perspective in order to take these types of fraud attacks into account when they’re building their prevention strategies.
Bruno Farinelli: I think it’s being careful with deviations. If you have a good high volume and you’re usually selling 10 orders a day for a specific state, if that number goes to 200 orders in a week, out of nowhere, there might be something wrong behind that. So, you might be checking in on what’s really happening. And this is on a high level. On a low level, a lot of the instances, we had the chance of speaking with people that would be working on e-commerce with shipping, for example, they would know when something was wrong because they are seeing the labels, they’re printing every day, and they can see whenever something is wrong or not. So, being connected to the floor of your company is also very smart to find some cases like this one.
Bradley Chalupski: Well, thank you very much for your time, Bruno, really appreciate it. And you’re welcome on the podcast anytime.
Bruno Farinelli: Thank you, Bradley. It was a pleasure. And if anyone has any questions, I’m very active on LinkedIn. So, feel free to add, exchange messages. I’d be happy to make some connections.
Bradley Chalupski: Thanks so much. Take care.
Bruno Farinelli: Bye-bye