The D2Z Podcast

Combating Delivery Fraud - 137

• Brandon Amoroso • Episode 137

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Here's What You'll Learn:
❗Delivery fraud is a significant issue for e-commerce businesses.
❗Customer experience is critical; poor service can lead to lost sales.
❗High risk scores can indicate potential fraud but require careful assessment.
❗Signature requirements can help ensure package delivery and reduce theft.
❗Tools like Deliverlytics aim to change consumer behavior regarding fraud.
❗Brand integrity is at risk when companies resort to deep discounts.
❗Chargebacks should not be the primary resolution for disputes.
❗Understanding consumer behavior is essential for preventing fraud.
❗Partnerships with carriers can enhance delivery security.
❗The future of e-commerce will require innovative solutions to combat fraud.

Timestamps:
00:00 Introduction to Deliverlytics and Its Mission
06:10 Customer Experience in E-commerce
12:54 Future of Delivery Fraud Solutions
18:39 Brand Integrity and Pricing Strategies
24:50 Conclusion and Insights on Chargebacks

Bobby MacKinnon:
Linkedin - https://www.linkedin.com/in/bobby-mackinnon/
Deliveritics - https://www.deliverlitics.com/

Brandon Amoroso:
LinkedIn - https://www.linkedin.com/in/brandonamoroso/
Web - https://brandonamoroso.com/
Instagram - https://www.instagram.com/bamoroso11/
X - https://twitter.com/AmorosoBrandon
Scalis.ai - https://scalis.ai/

Speaker 1:

Hey everyone, thanks for tuning in to D2Z, a podcast about using the Gen Z mindset to grow your business. I'm Gen Z founder Brandon Amoroso, former founder of Electric and now the co-founder of Scaless, and today I'm talking with Bobby McKinnon, who's the co-founder and CEO of Deliveritics, which is a platform that helps eliminate delivery fraud. Thanks for coming on the show eliminate delivery fraud.

Speaker 2:

Thanks for coming on the show, thanks for having me man Appreciate it, not Gen Z myself, but fairly close to the end of the millennial spectrum.

Speaker 1:

So not too far off. So before we dive into things here, can you give everybody a quick background on yourself and how you got into deliveralitics? It's a little bit of a tongue twister to begin with.

Speaker 2:

It is, it is. It is a bit of a tongue twister. Um, retrospectively probably should have, uh, should have done something different there. But um, yeah, so uh, I I started my career after college as a military logistics officer in the army for for five years. Um had a phenomenal, phenomenal experience. Really learned a lot about kind of how to think about problems, how to think about unique solutions to problems. Um of shaped and formed. You know the way that.

Speaker 2:

I approach everything right and gave me a lot of love and appreciation for the ability of small teams to accomplish a lot right, which is kind of what drove me into the startup landscape. After the military, I went to business school at the University of Virginia. While I was there, I interned at Nike on their post-purchase Nikecom's post-purchase consumer experience and insights team, so developed like a real good understanding of CX priorities and kind of everything involving how customers interact with dot-com websites and the challenges there and fulfillment and challenges in creating really good, meaningful customer experiences Went from that to a small blockchain AI startup.

Speaker 2:

We tore apart the Bitcoin blockchain de-anonymizing a lot of the transactions, then ended up working for the creditors in a couple of high-profile bankruptcies surrounding the collapse of FTX, Decided that I didn't want to really be a consultant for the US trustee in the core system anymore, so I left to start this company with a group of merchants down in Atlanta, georgia, that were all struggling with delivery fraud issues, and I kind of understood a little bit of it from my time at Nike and a lot of the skills and things that we were using with AI and machine learning on the on the blockchain side. We're highly applicable to what we needed to do here.

Speaker 1:

And so what exactly does you know deliveralytics do when it comes to you know delivery fraud?

Speaker 2:

Yeah. So I think the best way to to I think the best way to think about it is to start with where we did, which is, you know, we. We had a couple of businesses that were struggling with people claiming that they hadn't received packages. They would say, hey, I didn't get this thing, whatever it was baby stroller case, energy drinks, you name it from $20 all the way up through $1,200 orders, and obviously everybody knows that porch piracy is a real thing. It does happen. Things do occur. Right, there are things that get really dinged up and damaged in shipping. Um, you know, sometimes you have box issues where, like, the packaging is too thin and then the item breaks through. But the frequency with which some of these things were happening, um was was definitely it was. It was indicative of more of a pattern of fraudulent behavior. And so we decided like, okay, well, we can take in all of this data from the merchants, we can outsource in data from other merchants, we can write a bunch of predictive models and we can say like, hey, this is likely fraud, this is like some of the indicators, or these are places where you're likely to experience higher loss rates of packages. Maybe it's due to fraud, maybe it's due to piracy, I don't really know, but all I do know is that, like, it's happening at an outsized frequency, you know, at these three houses versus the street, right? So there's something going on there that you should generally try to avoid.

Speaker 2:

The more and more we develop a product and work with our customers and got their feedback on what was working for them, we found that most of them were they were using it proactively, right? So, like, if you have a Shopify store, we have an app there that you would install. The risk scores are done automatically as orders come into your store. It takes a couple of seconds and then we apply tags that you can then use to action workflows using the flow Cancel orders, add signature requirements if there's a high theft risk, so you can ensure the package actually gets there, all that stuff. But what we found was that most of our merchants were using it in their CX applications on the backend, right. So we would talk to our users and they would tell us hey, the insights up front are really good.

Speaker 2:

Sometimes I use them to execute workflows, sometimes I don't, but what I do every time is, whenever I receive a complaint from a customer or something goes wrong. The first thing I have my agents do is I have them check the deliveraletics score and he felt like and several of our merchants that go to the same sentiment that it was giving them a lot of comfort and providing them, from their perspective, a sense that this person probably did experience a legitimate issue with the order. There's nothing that has been like identified with that person or that address in the past where there's like a huge issue. So I'm just going to go ahead and like refund this thing or I'm going to go ahead and send them another one because I think it's the right thing to do. Right and and I think through that like we learned that you it's not, I mean there is like a, there's like a, obviously like a tangible benefit. Right, like if you reduce losses, you have less expenses, you're more Right.

Speaker 2:

But the bigger piece is you really want to provide the highest level of customer service and experience possible. Right, especially in-com, because the switching cost for your consumers is zero. Right, meaning like if I come to you and you're selling like Air Force Ones or something, right, there are 50 other websites where I can buy Air Force Ones. So if I were to come to like nikecom, and I would have a really bad experience buying my Air Force Ones there.

Speaker 2:

It's not even necessarily that I'm going to not buy Air Force Ones anymore, it's they'll just not buy them from you anymore, which was the whole point of setting up this like big D to C network for a lot of these big brands anyway, right, and for the smaller brands that maybe your product isn't sold everywhere, you know, it's just as easy for somebody, one of your competitors, to buy a Google ad for your product's name.

Speaker 2:

So then when I go and I type in whatever you know, pair of boots or whatever it is that I'm trying to order, I'm going to get 15 different alternatives that are probably like 80 to 99% of the same things that I was looking for with your product. And if I've had a bad experience with you, I'm just far, far more likely like four to five times more likely to go with an alternative than I am. To come back to you, right, that's what a lot of the consumer research shows. So I think these things have to sit in very good balance, and so you know we've set out to create, you know, products and services that support having that really, really strong balance and allowing you to deliver the highest quality customer experience without like getting taken.

Speaker 1:

So what happens when it is a high like risk score and the order you know isn't the order doesn't go through? Does that potentially like? Are there any like false positives? Like, what if that really is a customer and they want to get that order and it is a legitimate order, how does you know situations like that get addressed?

Speaker 2:

You see. So there's obviously there's a lot of drivers of risk, right. So it's not necessarily that ever like, a high isn't a high isn't a high, right. There's different reasons why we would say that something has a high risk associated, right? So if we said it has a high risk associated and the model indicator is that it's because of some sort of area risk, that would be an indicator of theft, I would never tell you or recommend or set up a workflow for you to cancel that order. Right, we're probably going to look at adding signature requirements. You know, if you have the capability to do a pickup point, like if you're working with a carrier like UPS or FedEx that have nationwide pickup points, then we would look to exercise one of those options as opposed to a cancellation.

Speaker 2:

Cancellations are really reserved for a very, very tiny percentage. I mean like less than 0.1% of orders that come through. So, just generally speaking, there's not a lot of them. There's not a lot of them. We also weight our models so that we will miss, basically, like we, we, we. It is incredibly rare to have a false positive. It's much more likely that you'll have a false negative with us, which is like, obviously, like, it degrades the effectiveness right Of the tool. But I think again like maybe it's because of my background around CX like to me that's the preferable trade-off. In that scenario, the false positive is the one that can, to your point, destroy brand reputation, and to me that's the thing that I have to safeguard against for my customers. Otherwise I've failed my mission.

Speaker 1:

Yeah, do you leverage any partnerships with the carriers? Or is there the potential for for that? Um, because you mentioned, like signature required. You know that would obviously be handled out by the, by the carrier. It's like that in theory sounds, you know, really really unique. Like oh, this is there's a high risk here, like we're sending it to you, but it now has signature required, or something to that effect. Yeah, yeah, I mean there are.

Speaker 2:

There's actually way more that I want to do with the carriers, um, and I think I think there's a lot of potential there. Signature verification is is something like we built a proprietary tool. That is nothing that you'll ever interact with as a user of our software or anyone would. It's just our way of creating that requirement on whatever software you use to buy the label Right. So let's say you're using like Ship Hero or something, or your 3PL is a Ship Hero Right. If you install their application, there's like a there's a part or there's a section where you would put your, your API key so that we can write those instructions to ShipHero's API for you.

Speaker 2:

And then when the label is purchased and created, it automatically has that requirement added to it, which means you buy it at the maximum discount that it's going to be offered at. And, critically, that is communicated with the consumer. When they receive the shipment confirmation email. They're going to see that a signature is required on the tracking page the first day. So you align the expectation with the reality day one, as opposed to if you had UPS or FedEx perform this kind of service. It's going to change the customer expectation two to three days into the order process, because UPS and FedEx will assign this thing many days after the label was purchased and created, which is probably why, to be honest with you, they've never done this themselves. Is it really with the customer?

Speaker 1:

experience for one of their you know one of their vendors and that's, that's it.

Speaker 2:

I mean, that's like the soft sensitive spot for them, right, like if just like me, like if they do something that degrades this, you know, the overall customer experience of their customers and consumer. They're getting dumped for one of a million other carriers now, right, so for them they have to safeguard against that just as much as I or Shopify does or really anyone else. That's sort of servicing merchants.

Speaker 1:

Where do you think this heads in three to five years, because it's obviously becoming more and more prevalent? I've even seen teams of people go into neighborhoods and just clear out every package that possibly could be there. Um, well, you know what do you think this looks like in in in three to five years? Um, from a from a solution standpoint.

Speaker 2:

I think that I think that there's a two part answer to this question, right? So there's. There's kind of two ways in which these issues present themselves. One is what we would call like the third party way, and the other one is the first party. So third party way is, you know, I I am pretending to be somebody else, right? I'm stealing a credit card.

Speaker 2:

This is like the fraud that you're, like, probably very familiar with. You know, those tend to be the schemes for people who are highly organized, right? So they're going to try to hack your UPS account and redirect the shipment to somewhere where they can get it. Or, you know, they're going to hack a bunch of UPS accounts for people that are buying AT&T phones or something, or Apple devices, and they're just going to follow the trucks around that have Apple devices on them. Maybe they're going to try to exploit the carriers those types of things. You'll see companies that are stood up that they'll troll the dark web, they'll do all sorts of creative reverse engineering of the playbook, and then they'll look for those trends and patterns.

Speaker 2:

Then there is the first party issue, which is I am who I say I am, but I just happen to know I can take advantage of you. There was a Wall Street Journal article that came out a couple of days ago that 41% of Gen Z respondents said that they thought it was acceptable to claim that they had not received an item when they actually did, and the numbers who said that they had bracketed or wardrobe were over 50% each amongst the survey. And so I think what you'll see in the future is tools like ours will curb that kind of behavioral abuse, because if you know that you can do that, there's a percentage of the population that is just going to take advantage of it. Right, like. But if you, if you know that it doesn't really work anymore, you kind of stop trying, right, so like.

Speaker 2:

Our role is, you know, shape and change human behavior Just by via the presence of us, existing right like. If you know that, like, this store doesn't instantly issue a refund to you anymore when you go to return an item, and they wait until the item has been inspected in a warehouse again, if you're doing something first party, your name is on it, so you're much, much less likely to like, brazenly go out there and do something, and that in and of itself, I think it's sort of you sort of spark the self-enforcing change.

Speaker 1:

Yeah, I mean I can see consumers where maybe it's a final sale item or something and they don't have the avenues to do like a normal return. So instead they'll just say you know, it never came, or you know, things like that.

Speaker 1:

So I wonder how long term this will impact. Uh, you know companies, policies around returns and exchanges and you know whether it's even worth selling through some of these items. For example, during Black Friday, cyber Monday and on these websites that I never even heard of before, that my girlfriend shops at and they are final selling some stuff at like $6 for an item. What is even the point at that point? If it goes out and then you know they say they didn't get it, who the hell cares? I mean you're not going to go out and try and like figure out how to recover that, et cetera.

Speaker 2:

But you know, maybe stores start to back away from some of these final sale items or stuff like that, because you know I agree that I think it will go there and I'm really hoping that I can help stores avoid it, because one of the issues that you run into is you run into brand dilution. So if you sell a bunch of product for this is why a barber jacket never goes on sale Like the classic ones, right, maybe some of their new stuff does, but like the old stuff that like prints, you know whoever in England is wearing, right, that thing is what it is you're either going to pay for it or you're not. Um, I think you know if, if you give into that temptation, it's very, very hard to recover that brand value. Once you've taken that step, you've kind of taken that step permanently, because customers know that at some point in the future there is going to be this like mega sale on this thing and they just wait to buy that.

Speaker 2:

That's the entirety of the behavior around Black Friday. I did it. There's a million things that I needed. It was like I need new workout shoes or whatever, and it's like, okay, well, I'm not going to buy them in September, I'm just going to wait until November and get them for 40% off.

Speaker 2:

That's really really bad customer behavior to like opt yourself into because that means you're always selling at your lowest margin at one of your highest costs too, right Cause, like peak season surcharges like it's, it's more expensive to fulfill that thing at a much lower margin to begin. Um, great for overall top line revenues and growth and brand awareness, but outside of that it's like it doesn't really do much for you. So I think like one of the features that we have, right, that you know we would tell somebody is if you have a customer with a history of bracketing or committing returns fraud, the items to them should be final sale, right, like it doesn't mean you should make all your items final sale or you should make items where you're experiencing fraudulent it returns fraud issues final sale. It just means that because that creates a bad experience for other people, right, for the other 98% of people who don't do this shit. Right, and that sucks, and that's the thing that's going to drive your consumer base somewhere else in the long term.

Speaker 1:

Well, I mean, that to me is much more appealing, you know, and especially as you get more and more storefronts, I imagine you can see oh, you know, brandon is a serial killer, did not receive his order guy. Yeah, you know, you're going to the sixth store and everything for me is final sale, but for the 99 of other customers it's not final sale, and that's exactly what we do.

Speaker 2:

Right like that. That is the core functionality of what we're providing and the way that we view the world is like because you basically you you have like I mean everything in life is trade-offs. Right like so. Trade-off one is you live in a world where everything becomes more draconian. Right like so. World one I like to use the domino's pizza example from like the late 80s right so you have 30 minutes or it's free.

Speaker 2:

Right world one is a bunch of teenagers exploit 30 minutes or it's free.

Speaker 2:

They order pieces while they live 32 minutes away, they get you to fulfill them and then they call in and they get free pieces every week, and then your driver starts speeding up and getting in more accidents, your insurance bill goes through the roof and you kill the program.

Speaker 2:

Way two is you know who these customers are that are trying to effectively like game the system and you don't allow them to game the system and then 30 minutes or it's free exists for the initial reason you created it, which is you have an edge case scenario where things go wrong because they always do in a certain small percentages of cases and you want to make sure that you do everything you can to make it right, because you, as the business who owns the customer relationship, have failed that customer relationship in the consumer's eyes. Right and like. That's the thing you need to constantly be obsessing over as a brand or as a business. If you want long term, you know, staying power and stability in the marketplace and profitable growth, right. But if you allow the edge cases to basically nuke the program for everybody else, then you tend to, you know, bleed the CX over time.

Speaker 1:

Yeah, I mean, you have to not shoot yourself in the foot tracking down the 1%. That is a bad actor. But at the same time, I have seen some crazy things when it comes to customers trying their hand at.

Speaker 1:

You know, scheming the system in any way, shape or form possible, and so it is the craziest example you can think of oh, so we had a, we had a coffee client, and so it is the credit card disputes, a lot of credit card disputes and then a lot of oh I, you know I didn't get this package and they were doing it over time, so it wasn't like it all hit it once, so like I forget who was auditing it.

Speaker 1:

But somebody was going through it and face, this person got, like you know, a couple, couple grand worth of free coffee, essentially over the course of you know, a year and a half or two years or something, because you know the systems are not that tight, you know, unless you're using third-party solutions like yours, I mean a shopify, even discount abuse is easy to do.

Speaker 1:

I mean open up incognito windows, you know it's, it's not that complicated, um, no, and so, uh, yeah, I mean that that, that was, that was definitely uh. One example. And then the craziest ones to me are always when customer signs for it and then they say they, you know they, they didn't, but like they definitely, they definitely did this, depending on, like the area. I think in some cases, you know, you could maybe say oh, they did or did not get it, but I mean, if you live in like a gated community and your signature is on the FedEx thing that was given to you for a pretty high ticket item too that's also like large, you know it'd be pretty damn hard to move, like you know, a cold plunge tub from from your house or somebody else's if you're trying to steal the thing. That just doesn't make any sense, something's not working out.

Speaker 2:

There you look like Wile E Coyote trying to carry the thing.

Speaker 1:

It would be a little insane, exactly, but we have seen customers rely upon credit card disputes as a means to not have to deal with customer service, which I actually think is some brands fault. I mean, if you go to some company websites, you're like how the hell, how do I even talk to you? And you can't? I had furniture delivered probably like four months ago. Something was wrong with one thing. I went through the claims process, I went through everything, never was able to get to an actual person. The claims link to go track, the claim 404, is when I try and go to it, and so there's literally no other resolution for me other than to dispute it. Even though I technically still have the damn thing, it's broken. I have no means of returning it or getting it repaired. And then the credit card company is like well, why haven't you returned it? I'm like, well, because I can't. I literally have no ability to return it.

Speaker 2:

They provided me. No like return it to where I mean. If you can tell me that answer, I'm more than I don't want this thing in my house.

Speaker 1:

Like I'm more than happy to get rid of it, I will literally light it on fire. Like I don't. I can't even use it.

Speaker 2:

So um yeah, even use it. So, um, yeah, I can see where that comes into the equation as well sometimes. But um, yeah, the other danger I mean if you're, if you're like a brand right the other danger of allowing it to come to credit card disputes is you compile a certain number of chargebacks and your processing fee moves up. Or you, like god forbid, you get like kicked off of whatever your processing network is right, like you become a high risk person, you become impossible to of whatever your processing network is. You become a high-risk person, you become impossible to service and your business is gone. Obviously that's a very worst-case scenario. Basically, having chargebacks be the default resolution mechanism is probably not a smart idea. I think it's positive. Definitely not a smart idea as a strategy.

Speaker 1:

I think it's definitely not a sound long-term business uh plan. Yeah for sure. Well, I appreciate you coming on and sharing, uh, these insights. It's definitely something we haven't touched on before and is becoming more and more of a problem. So, um, I think there's definitely a lot of need here with with merchants to. I mean, if they had some sort of a credit card chargeback system in place plus you, you're about as buttoned up as you could be on that post-purchase fraud side of things. But before we hop, can you let everybody know where they can find you or connect online, and I'll include it in the show notes as well, in case there's any more interest in learning more about this.

Speaker 2:

Yeah, you can find us at deliveralyticscom. Uh, you can find me on linkedin bobby mckinnon uh, you can also find me on twitter, bobby mckinnon. Um, you know, feel free to reach out. Um you know, love to serve any of your customers, awesome listeners or listeners.

Speaker 1:

Well, again, thanks for coming on for everybody listening. As always, this is Brandon Amoroso and you can find me at brandonamorosocom or scalistai. Thanks for listening and we'll see you next time.