How to Prevent eCommerce Retail Return Fraud
Rebecca Fox

March 12, 2023

While retail return fraud can be a big challenge for eCommerce stores, there are actions you can take to prevent return fraud.

Making it easy to return items is essential for customer loyalty and satisfaction. Unfortunately, this poses a challenge in preventing retail return fraud. 

The US retail industry suffers annual losses of about $24 billion in return fraud and return policy abuse, accounting for an average of 8% of returns. 

How can you spot fraud and take action to prevent it? Let’s break it down.

What is Return Fraud?

Return fraud is a form of online scam in which someone claims a refund they’re not entitled to.

While it is common for return fraud to involve stolen credit cards or false delivery claims, there are many types of return fraud ranging from honest shopping mistakes to malicious large-scale criminal operations.

Why Does Return Fraud Happen?

There are many reasons for return fraud to happen and is a gray area. While return fraud is often committed by criminals, it can also be done by regular customers who may not even realize they are doing something wrong. 

Retail return fraud can happen due to unclear return policies, a lack of security, or a manual return process that leaves room for human error.

Common Types of eCommerce Return Fraud

While there are many types of eCommerce return fraud, here are some of the most common ones.

1. Wardrobing

Wardrobing is a form of retail fraud where a consumer purchases an item while planning to only use it for a short period of time and then return it after use. Although wardrobing sounds like it might be only for clothing, it can apply to any item someone may want to use only once or twice.

For example, someone might buy an expensive dress for a special occasion, wear it with the tags hidden or removed, and then return the dress with the tags attached under the claim that it was the wrong color or size. Another example is where someone purchases plates, uses them for a dinner party, and then repackages them and asks for a refund. 

Fraudulent returns of this type take advantage of the store’s return policy.

2. Retail Sabotage

Retail sabotage is a type of fraud where a competitor purchases large numbers of an item to deplete your inventory or floods your system with small purchases with the intention of damaging your business.

3. Bricking

Bricking is a form of fraud that typically happens with electronic devices. The buyer removes valuable parts of the device to resell for a profit and then returns the item as defective or without even mentioning the removed part, which poses a challenge for you since you might unknowingly resell the now-defective device.

4. Empty Box Fraud

Empty box fraud is when customers claim they received an empty box and request a refund while secretly keeping the item. Alternatively, they may claim that they never received the package at all, or return a box filled with something to simulate the weight of the product, while keeping the item.

5. Stolen Merchandise Fraud

Stolen merchandise fraud is when someone makes a purchase on a stolen credit card and then returns the stolen item for cash or credit on another credit card.

Alternatively, a fraudster may use a stolen credit card to buy the item online, and then return the stolen item in-store for a refund. Without reliable cross-department tracking, this can be difficult to catch.

Other Types of eCommerce Return Fraud

A few other common forms of online return fraud are:

  • Price Arbitrage
    Purchasing two similar-looking but differently-priced items and returning the cheaper item as if it’s the more expensive one.
  • Switch Fraud
    Purchasing a working product and returning a previously-owned damaged or defective item in its place.
  • Cross-Retailer Returns Fraud
    Purchasing an item from one retailer and returning it to a different retailer for a refund, store credit, or another higher-priced item.

How to Prevent Online Return Fraud

With the right processes in place, you can minimize eCommerce return fraud attempts. It’s important to find a delicate balance of preventing fraud while providing good customer service.

Follow these steps to prevent online return fraud:

1. Immediately Inspect Returned Packages

Inspect packages as soon as they are returned and don’t issue a refund until you are sure this is the same product that was ordered. 

2. Place Product Tags in Visible Locations

The tags should be visible on products so fraudsters can’t remove and replace the tags or wear the item with the tags hidden. Additionally, when you receive a returned product, look for signs of wear such as make-up, deodorant, or scuff marks.

3. Require an ID and Contact Information for Returns

When processing a refund, retailers often require only a receipt, making it hard to prove the validity of the transaction. Ask for customers’ contact information and cross-reference it with the order details to prevent fraudulent returns. 

4. Create a Clearly-Defined Return Policy

Your return policy is one of the most significant factors in preventing eCommerce return fraud. While it is important to have a convenient return policy for your customers’ peace of mind, having a return policy that is too lenient can leave you vulnerable to fraud.

Prevent return fraud by having a clearly-defined return policy with a limited return window, clear-cut conditions for product returns, and refunds only in the form of store credit or refund to the original payment method.

5. Don’t Offer Cash Refunds

Instead of offering cash refunds, either apply the refund to the original method of purchase or issue store credit or gift cards. Issuing the refund in a certifiable way helps deter criminals who are looking to launder money through your store.

6. Improve Your Returns Technology  

Having an automated return management system in place can help you manage and monitor return requests. Avoiding fraudulent returns is easier when you can track your customers’ orders, define return conditions, and implement your return policy all in one place.

From streamlining return workflows to improving the customer experience, automated returns management technology like ReturnGO gives you better control over the process of processing, verifying, and tracking returns.

ReturnGO integrates seamlessly with your existing supply chain systems, giving you a complete view of your return requests, reasons, and resolutions. 

Automating your returns makes your return process more efficient and accurate, and reduces your return fraud rates.

Take a Stand Against eCommerce Return Fraud

Retail return fraud is a big problem in eCommerce and can lead to huge revenue loss. 

While it’s impossible to completely prevent eCommerce return fraud, implementing these best practices can help mitigate the damage it causes.

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