Ecommerce experienced exponential growth in the last few years, as new players appeared on the playing field – fraudsters who are taking advantage of retailers’ return policies.
Returns became the norm amidst the pandemic and beyond. And while PSD2 Strong Customer Authentication (SCA) presents difficulties for fraudsters attempting to penetrate the checkout process, they must target another weak link in the process. Returns represent a rich target.
Today, we explore some of the schemes undertaken by fraudsters and what online retailers can do to protect their businesses from returns fraud.
Maplin: baked beans for a PlayStation
To improve customer returns experience, businesses have been crediting an account as soon as a return has been scanned in for shipment back to the merchant. Unfortunately, this also opens the floodgate for fraudsters to take advantage of the policy. They would often ship back goods that weigh about the same as the original product. Sending back a counterfeit copy of the product or an old or damaged version are other popular approaches.
UK electronics giant Maplin, for example, experienced this type of fraud first-hand.
“Some favourites are, you know, sending those cans of baked beans that weigh similar to a PlayStation that they bought,” said Ollie Marshall, managing director at Maplin.
Return fraud alternatives
Fraudsters also seek alternatives to a straight return scam for the sake of a return. Item-not-received (INR) false claims, for example, are quite common. Amidst the increase in home deliveries, this newfound avenue for fraud potential has been used more frequently.
Another type of return fraud is claiming that what had arrived is not the item described on the website or was damaged on the way.
Signifyd data shows that there was a 35% increase in item-not-received false claims in 2022 in Europe. False claims about the condition of a product also had an uptake in the region by 68%.
Maplin is at higher risk of return fraud due to the nature of its business – consumer electronics.
Consumer return fraud
It’s not just professional fraudsters who are getting a taste of return fraud, however. During the pandemic, more typical consumers decided to take advantage of this weak link which contributed to the dramatic increase in return fraud.
In the UK, for example, more than 30% of consumers have filed false claims that an item they ordered arrived damaged, in order to keep the item and receive a refund. Another major reason to attempt illegitimate returns is that a person has found the product at a better price and would like to save on the purchase.
More than a quarter of consumers have made an item-not-received false claims, hoping for a return. Other false reasons for a return include receiving a defective product, wrong item or size, or a product that didn’t match the website description. And then there are those who would intentionally wear a product once and then return it.
How to prevent return fraud
Return fraud can be costly and damaging to a business’s reputation. Nevertheless, there are steps you can take to prevent and detect return fraud.
- Implement strict return policies: Clearly state your return policy on your website and make sure that all employees are familiar with it.
- Embrace automated order flow: Being able to quickly review orders, scan them for fraud, and verify the identity and intent behind every order and return claim is key for preventing fraud. Businesses are moving away from manual order review and embracing automated order flow and fraud review fuelled by machine learning. Now is the time to find new methods of ecommerce innovation.
- Verify customer information: Make sure to verify the customer’s name, address, and other information before processing a return or refund. This can help prevent fraudsters from using stolen identities.
- Monitor for red flags: Look out for signs of fraud, such as multiple returns from the same customer, returns of high-value items, or returns of items that appear to be used.
- Track and analyse data: Keep track of returns, refunds, and fraud, and analyse the data to identify patterns and trends. A robust fraud solution can help you optimise this process and access a large pool of commerce data to identify potential fraud. As a second action from this, you can make adjustments to your policies and procedures.
- Communicate with customers: Communicate with your customers to make sure they understand your return and refund policy and ask them for feedback on their experience.
- Train your employees: Educate your employees on how to detect and handle fraud. Give them the tools and resources they need to identify and report suspicious activity.
The combination of a boom in ecommerce orders, consumers becoming comfortable with returns, and a significant number of people facing financial difficulties sets the ideal stage for the rise of return fraud.
The fraud innovations we’ve seen and continue to see rely on finding a weak link in the payment ecosystem. But by implementing the right measures, online businesses can prevent return fraud and protect their bottom line.
Finding the balance between customer service and fraud prevention is key for maintaining a healthy relationship with your customers and protecting your business.