How to identify and prevent return fraud
Tasha Reasor
·January 11, 2022
Worried that ecommerce return fraud will hurt your revenue? We’ll show you how to set up return policies that provide a great shopper experience while minimizing the risk of return fraud.
Learn more about how to provide safe shopping in The Future of Shopper Experience.
The good news is that only 5% of returns are fraudulent, which means that return fraud isn’t something you should worry too much about. It’s also why you shouldn’t build your return policy for the minority of people that will abuse it.
Instead, we’ll explain how to put the right checks and balances in place to offset the potential effects of return fraud, covering:
- What is return fraud?
- Return fraud detection
- How to prevent return scams
What is return fraud?
First, let’s look at what return fraud is and study the most return scams that shoppers might use to defraud merchants.
- Unintentional return fraud:
Often, shoppers make an honest mistake by returning an item that isn’t eligible for a return. It might be a final sale item or an item from a category that doesn’t allow returns, such as intimates. In order to prevent this type of return fraud, it’s important to develop a clear and transparent return policy and build a returns portal that will ask the shopper questions about the item and its condition before approving the item for a return.
- Wardrobing:
Some people might buy an item then return it for a full refund after they’ve already used it—say, purchasing a fancy dress to wear to a dinner party or returning a book after they’ve read it. In order to prevent these types of refunds, you can put clear policies in place around the condition of your returns (i.e., all clothing items must be unworn and have tags in place, all books must be in new condition).
Or you could take the opposite route and actually make a more lax return policy an incentive to get more shoppers onboard by letting them try-before-you buy. For example, Allbirds gives shoppers a no-questions asked return window of 30 days to return its items, whether they’ve been worn or not.
- Return fraud with a stolen credit card:
In some cases, a fraudster will purchase items with a stolen credit card, and then attempt to have the refund processed to their own credit card. While this doesn’t impact your store directly, you can stop this type of fraud in its tracks by ensuring that refunds are processed to the original method of payment.
- Returning an empty box or different item:
Some con artists will request a return and then send back an empty box or an item worth less than the original—or in some cases, they may send back the original item with expensive components taken out. They trust that they’ll receive their refund before the merchant has inspected the merchandise. You can get around this by processing refunds only afterinspection rather than at the post office.
Return fraud detection
There are many ways that shoppers can attempt to defraud your store, but fortunately, they aren’t that common. Still, return fraud detection is an important skill to have.
First and foremost, assume good intent. Nobody wants to be treated with mistrust. So always assume good intent in your shoppers unless they prove otherwise. Remember that customer retention leads to profit, so don’t put that in jeopardy. If you do experience return fraud, you can handle those situations on a case-by-case basis as they happen.
Reporting and admin tools allow you to see customers who are abusing the system and you can take action right away to prevent further abuse. As you find these shoppers and adjust your policy, you will find that you can drive your return fraud rate down as you learn.
How to prevent return scams
Return fraud detection is the first step in preventing return scams of all types. But once you know when return fraud is happening, it’s important that you also know how to prevent it.
To prevent return scams, you can try any of the following tactics.
Use different processing events for different types of returns
If a shopper is looking to expose your return process online, they are usually doing so by keeping the product and sending you back an empty box, a fake product, or a package of rocks. They are hoping that the refund is issued before you see that they have defrauded you.
This is only an effective tactic when the return is for a refund to the original payment method. If they are getting store credit or a new product, it is way less effective of a scam.
That is why we recommend processing the return at different points for different types of returns.
- Refund: process once the return is inspected at the dock
- Store credit: process the return when scanned at the post office
- Exchange: process the return when scanned at the post office
By processing the non-refunded returns at the post office, you are striking a great balance of protection and speed for your shoppers.
Add shoppers who commit return fraud to a block list
One of the easiest ways to deal with return fraud is to simply block those who are being fraudulent. Building a policy that tries to eliminate all fraud often leads to a bad customer experience for the majority.
At Loop, you simply add shoppers to the block list. Essentially, what this means is that if a shopper commits return fraud, you can block them in your system. If that same person tries to process another return, they won’t be able to do it automatically and will be required to talk to the customer service team to prevent them from abusing the system again.
Don’t let return fraud ruin the experience for everyone
Avoid the mistake of inflating the potential impact of return fraud on your business. The truth is that most shoppers follow the rules and want to build a positive relationship with your brand. Use these tips to minimize the risk of the 5% but, otherwise, stay focused on the 95%.
Want to learn more about how Loop can help reduce your return fraud? Just get in touch with our team.
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