How to prevent eCommerce retail return fraud

October 26, 2021
| by David Miles

The internet has increased the opportunity for retailers to reach consumers that were out of reach in the past. The internet has made most items available at the push of a button. However, with increased sales and increased consumer audiences, retailers need to prepare for the possibility of increased refund fraud.

Returns are not always deceptive. Sometimes the consumer has made an honest mistake.

Common reasons for eCommerce returns :

  • The consumer purchased the wrong item, forgot they ordered the item, or simply changed their mind once they received the item.
  • The item purchased arrived too late and the consumer no longer needs it. This could be the consumer bought the item for an event and the event already happened or the consumer became impatient and was able to find the item elsewhere to receive the item sooner.
  • The product received was damaged or defective, even if the item was sent out in an impeccable condition.

The reasons for these returns can be mitigated to an extent by:

  • Ensuring all product information and images are accurate, descriptions are clear and complete.
  • Making it easy for the consumer to ask questions about the items and provide accurate and quick responses to these questions. A couple of minutes before the order is placed can help mitigate fraud that may happen later.
  • Using a multi-step process to ensure items ordered matches the items being sent
  • Make the ship times and anticipated receipt of items clear when ordering.
  • Ensure packaging protects the items as best as possible from the handlers and the environment.

Return fraud happens when a consumer buys from the retailer and then returns the item that does not qualify for a return or refund. More increasingly, the fraud involves a calculated and malicious intent on behalf of the consumer. Return fraud is contributing to a large revenue loss for the retailer.

With return fraud, consumers will bring an item to you and request a refund in the form of store credit or cash. For one reason or another, the customer does not have a legitimate right to a refund. Some of the common return frauds occurring are:

  • Free Renting of Clothing/Items which brings about a new term called “Wardrobing”. When a consumer purchases an item and only plans to use this item for a short period of time and then returns after use. Think of the expensive dress for that special occasion someone purchases and wears with the tags hidden or removed and then returned with the tags reattached. It could also be someone that purchases plates for a dinner party, use the plates, and then repackages for a refund. These types of returns are fraudulent, pure, and simple.
  • Retail sabotage is another type of fraud where a competitor can purchase large quantities of an item to deplete an inventory and then return those items once the item is no longer popular or in style, etc. Another form of this would be when the consumer purchases the real item and returns an item that is a very close counterfeit.
  • Bricking happens mostly with electronic devices where the consumer will remove the part that is needed and then return the item as defective or not even mention the removed item to the retailer. This becomes a challenge as the retailer then resales the item and it is reported as defective.
  • Consumers will claim they received the box/package and no item was in the box at the time it was received. Basically, an empty box was received.
  • Stolen merchandise fraud causes the consumer to buy an item on a stolen credit card and then return the stolen goods for cash or credit on another credit card.

Mitigating these more drastic fraud attempts can happen if the right processes are in place. Employees that handle the returns should be aware of return fraud and of ways to minimize the fraud:

  • Inspect packages that are returned for a refund immediately. Do not issue a refund until you are satisfied this is the same product that was sent.
  • Tag products that are wearable or usable in visible locations to hinder the removal and replacement of the tag or wearing of an item with the tags hidden. Look for signs of wear such as make-up, deodorant, or scuff marks.
  • Have different departments check on returns to make sure the credit card company has not placed a hold on an item due to suspected fraud before issuing the refund.
  • Require an ID and contact information for all returns. This can deter many consumers from trying to falsely return.
  • Offer credit to the original form of purchase or issue gift receipts on returns instead of cash refunds.
  • Make sure the return policy you have in place is up to date to lessen dishonest returns.
  • Check email of consumers for dates created. Most fraudsters will create multiple accounts the same day the order was placed.
  • Gather phone numbers on checkout and use a site to validate the phone number.

In the world of retail, it is known that the retailer sometimes must look the other way when they suspect a return fraud. This could be due to the “he said, she said” phenomenon that it is the retailer’s word against the consumer’s word. Even if there is a high probability that fraud is suspected, the retailer does not want to take the risk of angering a customer which could lead to reputational damage that is irreversible. There is a fine line that needs to be maintained with selling via eCommerce. The retailer wants their consumers to have the customer service they expect while curbing fraudulent returns quickly and effectively. It is important to keep in mind that return fraud is increasing and it is up to the retailer to sift through as much information as they can on the order and process returns efficiently and effectively to stop the fraud before it happens.

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