Return Fraud Reaches New Heights

Return fraud has gotten a lot of attention over the past year, including last month’s article in the Wall Street Journal. This reflects a growing nationwide problem in the U.S., where retail return fraud results in over $27 billion worth of losses annually in 2019.

The scam typically works like this: a customer orders a product, receives it and then reports to the merchant that the item was not received. For retailers, proving that the shipment already arrived is very difficult and for most orders, they will simply issue a refund. This way the refunder gets the goods and avoids spending any money.

The Refunder Industry

To make matters worse a whole cottage industry of professional refunders has sprung up. These people will deal with customer service on your behalf and know the specific company’s policies so they can help you game your way to a refund. In return, the “professional refunder” asks for a percentage of the overall transaction value.

According to industry consultant Karisse Hendrick in the WSJ article, there are people who are currently earning $20,000 a day committing return fraud. Fraudsters working the returns angle are doing so well because it’s hard to catch at the time of the transaction. Everything appears more or less kosher when compared to payments fraud.

While “item not received” became the favorite tactic return fraudsters during the corona outbreak, some other tactics in return fraud include shoplifting with a receipt, shoplisting, fake receipts, price arbitrage and tender liquidation. 

• Shoplifting with a receipt is when a fraudster purchases a good, keeps the receipt and then goes back to the store to take another of the same good. They then return the second good to make back the money they paid out on the first.
• Shoplisting is when a fraudster uses found receipts to create a shopping list of goods to locate in a store 
• Fake receipts are provided by specialized criminal sites online that help thieves steal from retailers.
• Price arbitrage is the purchase of two similar looking products at different prices and returning the lower priced product in place of the more expensive one.
• Tender liquidation refers to the use of one form of tender, such as a stolen credit card, to purchase a product, return it and receive merchant credit that can be sold on an online marketplace.

How to limit returns fraud

The number one way to reduce return fraud is to offer to make a customer whole with in-store credit instead of cash refunds. Offer cash only as the last resort after the buyer has confirmed their identity and turned down all other options. You can start by offering the buyer in-store credit with a bonus or discount. Allowing the buyer to make an equal exchange for another item is also a good option for keeping legitimate buyers happy while deterring scammers.

For returned online or MOTO (mail order/telephone order) purchases where you suspect return fraud, it makes sense to contact the customer by phone to ask what the exact nature of the problem was. This is a great chance to learn more about your customers’ experience with your products and checkout process. It also provides you the opportunity to check if the person who made the return request is the same person who made the original order.

Lastly, you can use a solution vendor that implements block lists for processing eCommerce transactions. That means that if you catch a customer committing return fraud, you can block them in your system from making returns in the future. If they try to make a return again in the future, they will be required to talk to your customer service team who can take steps to ensure that the return is legitimate.

Returns that morph into chargebacks

Of course, many fraudsters will not even bother trying to file a return claim with the merchant and will proceed straight to a chargeback. Similarly, customers whose return claim is rejected for a refund may seek to regain their funds via chargebacks. For cases like these, there is Justt.

We offer a custom-built solution tailored to your specific needs. Our success-based fee means that we don’t add to your fixed costs. If you are impacted by illegitimate chargebacks, contact us to learn more about how we can work together to get you the money you deserve.