5 Insights on Fraudulent Returns in E-Commerce

Last Updated on July 14, 2024 by Asfa Rasheed

Are you an online seller? Have you ever made transactions with marketers online? If so, you must be aware of a prevalent scam circulating on the internet these days: Fraudulent Returns!

In recent years, e-commerce platforms have witnessed a significant increase in fraudulent return activities. These kinds of scams occur when individuals exploit the return policies of online shops and platforms for personal gain through deceptive mean

Many businesses operating online are concerned about this issue as they lack direct recourse when encountering fraudsters in internet marketplaces. Furthermore, online marketing platforms are urged to double down on their policies to protect business owners against these kinds of activities. 

Tactics Employed by Fraudsters

Fraudsters employ a variety of tactics to carry out fraudulent returns, including returning stolen items, using counterfeit receipts, or exploiting lenient return policies. Businesses must understand these tactics to implement robust fraud detection measures and prevent revenue loss due to fraudulent activities.

These scammers often capitalize on weak return policies of online stores by exploiting loopholes and ambiguities to manipulate the system, such as returning used or damaged goods under the guise of being in original condition. Given the rise in cases related to counterfeiting and fraud, it’s imperative that e-business owners understand the strategies used by scammers to fortify their defenses against fraudulent return scams. 

The Scope of the Problem

While traditional stores are not certainly immune to return fraud and abuse, the issue is exacerbated in the realm of online selling for a few key reasons:

Anonymity 

With limited interactions behind in-platform messaging apps, it is much easier for online scammers to misrepresent themselves to conceal their identity when making fraudulent purchases and returns.

Lenient Policies

Many e-commerce websites have moved to ultra-flexible return windows to stay competitive and provide excellent customer service. However, these settings make it easier for fraudsters to exploit the system. 

Lack of Immediacy

Unlike physical stores where a fraudster can be caught in the act, e-businesses cannot have direct action on fraudulent transactions and returns as processes behind these acts go under quick automated responses. By the time an online retailer realizes they received a fraudulent return, the perpetrator may be long gone.

So just how big is the issue? Estimates vary, but studies suggest return fraud may account for up to 35% of total merchandise returns for online retailers – a staggering amount. Some sources estimate the annual cost at over $25 billion in the U.S. alone.

Common Types of Return Fraud

There are several ways that shoppers attempt to defraud retailers through abuse of return policies. Some of the most prevalent include:

Fraud Type	Description
Wardrobing	Purchase apparel, use it, and then return it for a full refund, essentially treating it as a free rental.
Re-shipping/Re-buying	Purchase an item, use it, re-package it to ship back an empty box for a refund, or repeatedly buy/return items.
Employee Fraud	Dishonest retail staff steal merchandise, repackage, and return it for refunds, pocketing the money.
Returns of Used or Damaged Goods	Exploiting lenient return policies by returning heavily worn, damaged, or worthless items for refunds.
Counterfeit Products	Purchase an authentic product, return it for a refund, then submit a fake or knock-off item as the “return.”
Sizing/Item Swapping	Purchase an item, wear it, and then return a different (often cheaper) item or size to get cash back.

How E-Commerce Brands Can Protect Themselves

While there is no concrete possibility to stop return fraud altogether, online businesses have the tools and best practices to identify and minimize these scams. A multi-layered approach is found to be the most effective. Some steps a business owner can take include the following:

Set Clear Return Policies

First and foremost, e-commerce brands need to have clear, straightforward return policies that address issues like wear and tear, packaging requirements, eligibility windows, and restocking fees. Get ahead of potential abuse by explicitly stating what types of returns will be accepted.

Use Return Monitoring Solutions

Retailers should consider implementing return monitoring services that utilize data analytics to score and track riskier return behavior. Through monitoring, suspicious patterns can be detected early and preventative measures are taken.

Many solutions use sophisticated algorithms that analyze variables like return rates, geography, credit card numbers, and more to identify high-risk returns before they’re processed.

Leveraging BOPIS & Curbside Returns

Omnichannel services like Buy Online, Pickup In-Store (BOPIS), and curbside returns can reduce the anonymity and distance that enables certain scams. Since the shopper must show up in person, it automatically mitigates some abuse opportunities.

Strictly Inspect Returns

All returns should be thoroughly inspected, authenticated, and processed by a dedicated staff trained in identifying issues like wear and tear, missing components, repackaged merchandise, replicas, and other signs of improper returns.

Limit or Change Return Windows

One way to make wardrobing and similar scams less appealing is by shortening the return policy window. Consider restricting returns to within 7 to 14 days of receipt. Or switch to a more nuanced policy like allowing 14 days for returns of unworn merchandise, but only 3 days for worn items.

Restrict Payment Methods

Digital payment methods like PayPal, Apple Pay, and credit cards make it easier for scammers to hide their identities and rapidly move on to new accounts. Old-school paper checks can make it riskier to defraud retailers.

Require Identification & Signatures

By asking customers to show ID and sign for returns over a certain amount, it automatically builds in more accountability and traceability to cut down on abuse. Signatures can’t be easily forged or laundered.

Monitor for Analytics Signals

Certain key signals return monitoring analytics can look for to identify suspicious behavior, like whether the customer frequently maxes out on a retailer’s return policy limits or returns a high percentage of their total orders.

Major data points could include returns per customer, average return value, frequency of re-purchases, total returned value in a given period, and other patterns that might spell fraud.

Invest in Staff Training

Beyond general return policies and procedures, it’s important for e-commerce companies to properly train staff on how to identify potential abuse or fraud attempts through careful inspection. Product knowledge is critical, as is handling questionable returns.

Revisit and Revise Policies

Return policies should be living documents that undergo regular review and revision based on current data and troubling trends. By consistently monitoring for signs of abuse and new scams, retailers can modify their rules to close loopholes.

Balancing Act

Ultimately, preventing return fraud involves a balancing act between customer service, overhead costs, and loss prevention. The stakes are high as fraudulent activities like these eat up profits quickly if left unchecked, and so e-business owners should have a clear understanding and vision of the problem at hand. In order to nip the problem in the bud, online shops should employ methods that would secure their businesses from the malintent of a few individuals. This is important while also ensuring that businesses don’t alienate loyal customers by mistrusting their brand.

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