Return fraud is a constant problem for eCommerce stores around the world, with many forms of return fraud ranging from unintentional fraud to organized crime damaging businesses.
What is Return Fraud?
Return fraud is the act of intentionally returning an item to an eCommerce store based on false or misleading information, with the intention of obtaining a refund or store credit.
Customers may engage in return fraud through practices like returning used or counterfeit items or claiming that an item was never delivered in order to receive a refund or store credit.
The practice of return fraud is a major issue for eCommerce stores and can result in significant financial losses.
In order to prevent return fraud, it’s important to implement a strict return policy and ensure proper verification of returned products before issuing any refunds to customers.
Common Types of Return Fraud
Common forms of return fraud include:
Wardrobing is a form of return fraud when a customer buys an item while planning to use it once or twice and then return it for a refund.
For example, this is common in the apparel industry, where a customer might wear a piece of clothing to a special event and then returns it for a refund.
Bracketing is a form of return fraud when a customer buys multiple items with the intention of returning the ones they don’t want once they receive them.
Empty Box Fraud
Empty box fraud is a form of return fraud when a customer claims that the box in which their order was delivered is empty, and asks for a replacement or a refund while secretly keeping the original item.
Price arbitrage is a form of return fraud when a customer buys two similar-looking but differently-priced items and returns the cheaper item as if it’s the more expensive one.
This is often done by switching the price tags or showing a fake receipt with a higher purchase price.
Cross-retailer fraud is a form of return fraud when a customer buys a cheaper product from a competitor and returns it to your store for a higher refund.
Price Tag Switching
Price tag switching is a form of return fraud when a customer replaces the price tag on an expensive item with one from a cheaper item, buys the item at the lower price, and returns it after switching the price tags back, pocketing the difference.
Stolen item fraud is a form of return fraud when a customer steals a product and then attempts to return it to the store for a refund.
The customer may present a fake receipt or claim that they received the item as a gift and don’t have the original receipt.
Employee fraud is a form of return fraud when an employee manipulates the return process for personal gain.
This can include giving refunds to friends or family or manipulating the return process to steal money from the business.
Receipt fraud is a form of return fraud when a customer returns an item using a fake receipt.
Using a forged receipt, fraudsters claim they bought an item from the store and request a refund.
Bricking is a form of return fraud that is specific to electronic devices and is when a customer removes valuable parts of the purchased device to sell for a profit and then returns the item as defective.
This is often done by installing unauthorized software, making changes to system files, or deliberately damaging the hardware. A bricked device can’t be used or resold, leaving the eCommerce store with a worthless product.
Competitor sabotage is a form of return fraud when a competitor uses multiple accounts to repeatedly buy and return a store’s products, intentionally harming the business through the returns process.
How to Prevent Return Fraud
A well-defined return policy can help prevent return fraud because clearly defined conditions make it more difficult for people to commit return fraud than if conditions are vague or unclear.
Customers will be discouraged from fraudulently returning items if there is a clear return policy, as they will be aware of the conditions for returning items, and will understand that they won’t get a refund if the items don’t meet those conditions.
Additionally, using tools such as fraud detection software can help detect unusual return patterns.