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Return Fraud Signs & Best Practices On How To Avoid Fraudulent Returns

Dealing with return fraud is easier said than done. Luckily, in this article, we’ll talk about return fraud signs to watch out for and best practices to help you avoid fraudulent returns altogether.

Return Fraud Signs And Best Practices On How To Avoid Fraudulent Returns
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Learn how to handle return abuse and fraud!

Want to know all about return abuse and fraud, and how you can handle them? Check out this guide!

Imagine the following scenario:

 

John has a smartphone.

 

John decides he no longer wants the smartphone. He checks the return policy on the retailer’s website and comes to the conclusion that the return window for this kind of product is 14 days.

 

John returns the smartphone.

 

John had, in fact, forfeited the invoice and got away with it.

 

Plot twist: The smartphone was stolen merchandise.

 

No, this is not the plot of the newest Netflix series production or a part in the next Bond movie. It’s something that happens every day, even multiple times a day, to a significant number of online and omnichannel retailers.

 

If you’re also struggling with this you might have tried updating your product pages and offering return tracking. And you might have also noticed that it’s not enough to stop fraudulent activity. 

 

In theory, theory and practice are the same. In practice, they are not. – Albert Einstein

 

Truth be told, it’s much harder to identify and combat fraud in practice than in theory. You need to have processes and tools in place that enable you to take back control while separating legitimate returns from fraudulent ones.

 

In this article, we’ll tell you all about eCommerce return fraud and how to effectively prevent it, so keep reading!

What Is Return Fraud In eCommerce?

 

First of all, not all ineligible returns are equal.

 

Sometimes customers will return non-compliant items by accident, with no malicious intent.

 

This normally happens because of an unclear or inaccessible returns policy. If yours isn’t readily available on your website and is clear enough for website visitors and customers to understand, you will surely end up with cases as such, when well-intended people return items that are simply not compliant with your return policy, all because of an honest mistake.

 

That is exactly why having a straightforward and concise return policy is a must for preventing return fraud, whether it’s unintentional or not.

 

But there are times when your customers (or other individuals) will try (and succeed) to return items that are ineligible for their personal gain, negatively affecting your commerce business.

 

How can you identify and separate fraudulent returns from legitimate returns?

 

Return fraud is one shady business, quite literally, so make sure you trust but verify everyone involved in the process. Here are five indicators of return fraud to help you get started:

 

Purchase frequency – find out if they are repeat buyers and if there is anything suspicious regarding their purchase behavior, both online and in-store if that’s the case.

 

Return frequency – see if they’re serial returners and whether or not their return reasons are legitimate.

 

Average price value – when looking at their purchase behavior, make a note of the average price value.

 

Types of products – see what kind of products they’re usually purchasing and the quantity for each order.

 

Exceptions – observe if a customer’s returns were approved multiple times on the basis that there was an exception and if this action is clearly attributed to one of your employees.

5 five indicators of return fraud

What Is Return Abuse And How To Handle It?

girl trying to understand return abuse
girl trying to understand return abuse

What Is Return Abuse And How To Handle It?

The Cost of Return Fraud

 

Return fraud costs merchants billions of dollars each year. In fact, retailers lost around $11.6 billion in 2020 due to return fraud and abuse.

 

A return costs on average 30% of the purchase price. Let’s say that it costs $4.5 to process the return of a $15 product. Assuming you have 1,000 returns each month, you approve 85% of them, which equals a total of 850 returns, amounting to $3,825 (850 x 4.5).

 

Out of the 850 approved returns, you have about 5% fraudulent ones (about 42), amounting to approximately $198 (42 x 4.5). In this particular example, for every 1,000 returns, you lose about $200 in return fraud (or more, considering the number of individuals returning stolen merchandise).

 

What if your products are much more expensive? What if you have 10,000 returns per month? What if it takes you much more than 30% to cover the cost of the return?

 

Just think about the peak holiday season or other events during the year when the number of returns soars.

return fraud and abuse negative effects

Holiday Shopping Season Increases The Risk of Fraud

 

On average, the return rate for online purchases is 30%, with rates as high as 50% in some apparel industries, according to Shopify’s Fashion Industry Report. During the holiday season, undoubtedly, the number of sales increases and so does the return rate.

 

This is why during peak season you should be extra careful with your returns and have a great system that enables you to process a huge volume of returns. Automate as many tasks as you can, but also make sure to manually inspect the returned merchandise for better accuracy.

average return rate online purchase

If your returns management platform allows it, you can automate the returns process up to a point, and then have your staff go through the return requests, proof of purchase, receipts, and other types of documentation you might require.

5 Types of Return Fraud

 

The first step toward fraud prevention is to know what you’re dealing with. You can solve a problem you’re not even aware exists. We want to make sure online and omnichannel retailers thrive while creating the best post-purchase experience possible for the customers, so we’ve compiled a list with five of the most common types of return fraud with examples:

 

Returning stolen merchandise

Returning stolen merchandise after shoplifting or items obtained some other way is a type of return fraud, and it’s actually a very common one. The individuals trying to return stolen products do this in the hope to receive a full-price refund.

One way to avoid this kind of fraud is to always ask for proof of purchase or a valid receipt that you can inspect and check in your system.

 

Price Switching

Another way of committing return fraud is by purchasing differently priced items just to return the cheaper item as the higher-priced one. The act of swapping, removing, or altering price tags for personal gain is often punished by law, depending on region and local regulation.

Price tag switching is similar to profiting off the price difference that happens with receipt fraud as well.

 

Receipt Fraud

Receipt fraud refers to the act of stealing or falsifying receipts in order to return products for one’s personal financial gain. Individuals might take advantage of someone else’s receipt when trying to return a product.

 

Similarly to price switching, some people may be buying items at a lower price from one place to return them to another store that charges a higher price for personal profit.

 

Chargeback Fraud

Chargeback fraud occurs when a cardholder disputes a charge to their bank account and asks for a reimbursement. It’s one of the most common types of retail fraud and, as a matter of fact, experts estimate that up to 80% of the total number of chargebacks involve fraud. It is also one of the most challenging types to predict, identify and resolve.

 

Bricking

Bricking, which is once again very common, refers to the act of purchasing a working electronic product, using it up until it loses most or even all valuable, and then returning it for financial gain. Oftentimes, electronics that are returned under the form of bricking are missing valuable components like headphones, chargers, and the like.

Fortunately, with a good return policy and returns management system in place, bricking can be solved without too much struggle or loss in revenue, or even avoided altogether.

forms of return fraud

Fraud Prevention: Everything You Need To Know

 

In order to minimize return fraud and return abuse while creating a smooth return process for your legitimate customers, you need to have a concise and comprehensive return policy, the right tools to manage and inspect returns, and efficient processes in place.

 

Here are the three main steps you need to take:

 

Keep Your Return Policy Updated

 

It all starts with your return policy. The very first step to avoiding return abuse and return fraud is to make it clear that you’re aware of the issue and you’re taking action against it.

 

This will also help you set expectations for your legitimate customers while protecting your business from bad actors on your website.

 

Here is what you should be covering in your return policy:

 

  • Set expectations from the beginning to make sure that the condition in which they are returning items matches what is written in your return, exchange, and refund policy that is, preferably, available on your website (e.g., packaging intact, tags attached, included proof of purchase, etc.).
  • Discuss return windows and set clear timeframes for the return of merchandise. Most retailers offer 14-day  and 30-day return periods, but depending on your products, manufacturers, suppliers, or location, the return window allocated may vary. Moreover, you might consider applying an extended return policy during the peak holiday season, so make sure you include that on your website!
holiday return window logic christmas
  • Consider including clear and comprehensive instructions on how the return shipping should unfold, from accepted carriers, shipping labels, etc., to costs such as restocking fees and transportation. Also, let customers know whether or not you offer free return shipping and under what conditions.
  • Last but not least, explain if you allow making exceptions or approve returns under special circumstances. For instance, personalized items or some personal care products may be subject to alternate policies. Although you might not reimburse the full amount, you might offer them a fraction of the initial price, store credit, or some other form of compensation, including replacements and exchanges.

Not sure what your return policy should look like? Check out our return policy generator here!

Prevent Return Fraud With Smart Technology

 

  • Track both orders and returns to avoid missing or stolen package situations. This way fraudsters cannot claim they didn’t receive the item or that they’ve sent the product back when, in reality, they did not, and then ask for a refund. You’ll have access to the real-time location of the package both ways with order and return tracking!
  • Offer partial refunds and/or store credit to avoid reimbursing the full amount before receiving and inspecting each item that has been marked for return. Especially if a customer wants to return 2 or more products separately, you’ll be able to refund them as you get each product and upon a thorough examination.
refund method
  • Implement a return policy enforcer. If your returns management platform allows, you can also include a return policy enforcing question before automatically approving the return. If the response is unfavorable, you can go on with a manual inspection of the product or ask for more details, proof, etc. See here how you can enable the Return Policy Enforcer in WeSupply.
  • Use fraud detection software. There are a lot of excellent fraud detection tools such as Fraud.net and Riskified that can help you prevent retail fraud and abuse. Although you’ll have to invest some money in this type of software, if you’re handling a huge volume of returns and actively trying to combat fraud, this can be a great addition to your return strategy long-term.

 

Keep Fighting Fraudulous Returns

 

  • Have a chargeback recovery system to help you dispute the claim and recover lost revenue partially or entirely, depending on the situation.
  • Don’t shy away from blacklisting people, even the bigger brands are doing this, such as Sephora or Asos. Focus on your legitimate customers and let go of the rest, who are only trying to damage your business for their personal gain.
asos fair use return policy
  • Process refunds after inspecting items to make sure you’re avoiding situations like bricking. Make sure the item meets the requirements specified in your return policy and do not encourage this type of behavior.
return accept decline process

Key Takeaways: Reducing Return Scams

 

Dealing with return abuse and fraud can be quite challenging, time-consuming, and costly. We understand how disappointing and stressful it can be to fall victim to return scams, and we’re doing our best to help our customers fight back and avoid these unpleasant situations entirely by providing features such as partial refunds, return policy enforcer, and centralized order and return tracking.

 

What matters the most is to stay informed, keep examining items, collect relevant data, and be as proactive as possible. These little things can take you far, so keep going!

return policy enforcer

Frequently Asked Questions

Our platform allows you to partially refund items as you receive them in order to keep your warehouse organized and reduce return abuse or fraud while keeping legitimate customers happy. Check out the article here to learn how you can enable partial refunds in WeSupply.

With Return Policy Enforcer, you can ask your customers a simple ”YES”/”NO” question about their purchase before automatically approving the return as part of the return request flow. This creates an automated filtering process that adds one more security step to your returns process. Click here to learn how you can activate the Return Policy Enforcer in WeSupply.

Yes, you can! WeSupply enables you to create different permissions for each supplier and assign different roles to your team members. For a quick walkthrough, take a look at the video here!

Yes, you can process returns automatically or manually, or both ways, depending on your needs. For setting up a manual flow, you only have to select the Require Authorization option. See here how to customize the return approval process in WeSupply.

The answer is most certainly yes! We offer a variety of app, store, and carrier integrations to help you make the most out of your existing tools and services, more on that here.

See WeSupply in Action

 

Want to learn more about our Self-Service Returns Center and how it can help you overcome the most challenging returns situations?

 

Watch our demo here to see our platform in action and decide if we’re a good match for your online or omnichannel retail business!

Learn how automated returns
work in WeSupply!

Our shipping and logistics experts will guide you through the product and analyze how WeSupply best fits your eCommerce needs.​

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