What is Return Fraud?

Sydney VaccaroPhysical GoodsLeave a Comment

What is Return Fraud
Return fraud can happen in many different ways, but overall it is when someone abuses the return process to gain money or merchandise.

Merchants are very familiar with returns. In 2017, total merchandise returns accounted for more than $351 billion in lost sales for US retailers. With the rise of ecommerce, the amount of returns has not lessened for merchants. Just creating an effective process for handling returns and the logistics that come with it can be overwhelming for merchants. While creating the return process, merchants should also be keeping in mind the balance of easy returns for customers and safeguarding themselves from return fraud.

What is Return Fraud

Return fraud can happen in many different ways, but overall it is when someone abuses the return process to gain money or merchandise. The NRF 2018 Organized Retail Crime Survey found the top return fraud types that merchants experience:

Return Fraud Type

% of Merchants that Experienced

Returns of shoplifted/ stolen merchandise

77.3%

Employee return fraud and/ or collusion with external sources

63.6%

Returns of merchandise purchased on fraudulent or stolen tender

59.1%

Returns made by organized retail crime groups

48.5%

Wardrobing or renting (returns of used, non-defective merchandise)

31.8%

How to Prevent Return Fraud

Preventing return fraud should be a priority for merchants. By not taking proactive steps to prevent fraud, merchants are losing hard earned revenue. Here are a few methods that can be put in place to prevent return fraud:

Do Not Allow Returns Without a Receipt

Real customers will attempt to return items without a receipt. The NRF survey estimated 11.8% of all returns are missing the receipt. Of those, more than two in 10 are expected to be fraudulent. By making a receipt a required part of the return process merchants will be preventing these fraudulent returns.

The NRF pointed out that merchants may attempt to reduce fraudulent returns by providing a gift card or store credit rather than a refund when a receipt is not present. But those gift cards can easily be sold. So the method of issuing in-store credit may slow the fraudster from getting the cash, but the result is ultimately the same. They end up with the cash from the stolen and returned merchandise.

Train Employees on the Process

Create a set and detailed process for returns and train all employees on that process. By having a set and controlled process that won’t let fraudster take advantage of it will deter fraudster from attempting return fraud. This return process could include checking that the item is in all of its original packaging, require identification when accepting returns to deter repeat offenders, and have a set guideline of what condition the product must be in to accept returns.

Return Funds to Same Payment Method

Make sure to refund the returned amount to the same form of payment that the purchase was made on. This will prevent fraudsters from using a stole credit card to make a purchase, then take the returned amount on a different card or in cash.

Beware of Omnichannel Returns

One trend that NRF found in their survey was an increase in fraud of omnichannel returns. Retailers reported seeing a 37.9% increase in buying online, return in-store behavior. And about 30% of merchants said fraud is increasing in this area as well.

Remember Not to Make Return Policies Too Strict

Although it is important for merchants to protect themselves from return fraud, it is also important to not make the return policy too strict. If a customer feels like the return policy is unfair they may turn to the dispute process to try and get their money back. Chargeback fraud is the fraudulent request for a return or refund in the form of a dispute. The cardholder will dispute the transaction to try to regain the transaction dollar amount while no longer having plans to return the item. They are just determined to get their money back.

If the customer does turn to dispute the charge not only will the revenue be automatically taken from merchants, but they will also receive a chargeback fee during the process. The chargeback fee needs to be paid even if the merchant wins the dispute.

Merchants are very familiar with returns. In 2017, total merchandise returns accounted for more than $351 billion in lost sales for US retailers. With the rise of ecommerce, the amount of returns has not lessened for merchants. Just creating an effective process for handling returns and the logistics that come with it can be overwhelming for merchants. While creating the return process, merchants should also be keeping in mind the balance of easy returns for customers and safeguarding themselves from return fraud.

What is Return Fraud

Return fraud can happen in many different ways, but overall it is when someone abuses the return process to gain money or merchandise. The NRF 2018 Organized Retail Crime Survey found the top return fraud types that merchants experience:

Return Fraud Type

% of Merchants that Experienced

Returns of shoplifted/ stolen merchandise

77.3%

Employee return fraud and/ or collusion with external sources

63.6%

Returns of merchandise purchased on fraudulent or stolen tender

59.1%

Returns made by organized retail crime groups

48.5%

Wardrobing or renting (returns of used, non-defective merchandise)

31.8%

How to Prevent Return Fraud

Preventing return fraud should be a priority for merchants. By not taking proactive steps to prevent fraud, merchants are losing hard earned revenue. Here are a few methods that can be put in place to prevent return fraud:

Do Not Allow Returns Without a Receipt

Real customers will attempt to return items without a receipt. The NRF survey estimated 11.8% of all returns are missing the receipt. Of those, more than two in 10 are expected to be fraudulent. By making a receipt a required part of the return process merchants will be preventing these fraudulent returns.

The NRF pointed out that merchants may attempt to reduce fraudulent returns by providing a gift card or store credit rather than a refund when a receipt is not present. But those gift cards can easily be sold. So the method of issuing in-store credit may slow the fraudster from getting the cash, but the result is ultimately the same. They end up with the cash from the stolen and returned merchandise.

Train Employees on the Process

Create a set and detailed process for returns and train all employees on that process. By having a set and controlled process that won’t let fraudster take advantage of it will deter fraudster from attempting return fraud. This return process could include checking that the item is in all of its original packaging, require identification when accepting returns to deter repeat offenders, and have a set guideline of what condition the product must be in to accept returns.

Return Funds to Same Payment Method

Make sure to refund the returned amount to the same form of payment that the purchase was made on. This will prevent fraudsters from using a stole credit card to make a purchase, then take the returned amount on a different card or in cash.

Beware of Omnichannel Returns

One trend that NRF found in their survey was an increase in fraud of omnichannel returns. Retailers reported seeing a 37.9% increase in buying online, return in-store behavior. And about 30% of merchants said fraud is increasing in this area as well.

Remember Not to Make Return Policies Too Strict

Although it is important for merchants to protect themselves from return fraud, it is also important to not make the return policy too strict. If a customer feels like the return policy is unfair they may turn to the dispute process to try and get their money back. Chargeback fraud is the fraudulent request for a return or refund in the form of a dispute. The cardholder will dispute the transaction to try to regain the transaction dollar amount while no longer having plans to return the item. They are just determined to get their money back.

If the customer does turn to dispute the charge not only will the revenue be automatically taken from merchants, but they will also receive a chargeback fee during the process. The chargeback fee needs to be paid even if the merchant wins the dispute.