Return fraud: When scammers (and customers) thumb their noses at retailers

You might breathe a sigh of relief every time a high-value item has been legitimately sold and delivered to the right person at the right address without a hitch. But you might need to hold your breath a little longer. Return fraud is rapidly becoming a big problem for retailers as fraudsters are finding it hugely profitable. And their schemes are becoming bolder — and cheekier.

Say you guarantee a platinum return experience, where the return is processed the moment your customer drops off the package at FedEx, DHL or UPS. As long as the weight is approximately correct, they can ship anything back and still get their refund. You may get back a potato instead of an iPhone (true story). A box of rocks instead of a heftier electronics device (also true). Or, as is more common, you’ll be sent back a used or counterfeit item. Because you’ve already triggered the refund, you’ve lost twice over — both the item itself and its market value in cash.

Like everything else, this kind of fraud has intensified during COVID-19. Scammers exchange tips on forums like Reddit and fraud rings advertise their services on the Dark Web. Signifyd calculated that retailers lost more than $11 billion last year for the cost of goods alone And when you add up all the costs associated with this kind of fraud — shipping, inspecting, and disposing of bogus returns — return fraud cost retailers approximately $43 billion in 2020.

Signifyd examines the growing problem in two new reports — “The State of Fraud Report 2021,” exploring global fraud trends and the “State of Ecommerce Fraud in Europe which is a study of online fraud focused on Europe.

“Professional” return fraud services offered to consumers

Search the web and you’ll find whole marketplaces offering services for unscrupulous consumers looking to get a refund and still keep what they ordered.

These underground organizations take a cut of up to 40% of the refund. In return they do all the work — they communicate to the retailer, making up a complaint or customer service failure that nets them the ill-gotten gains without returning the item.

Such professional return fraud rings promote their services on message boards and elsewhere on the web. Some offer to return a consumer’s item for a refund. But instead of shipping back expensive jeans, tablets, or $25,000 gold necklaces, they ship back a knock-off of the product, an empty box, or something of equivalent weight, and sell the real item on any of a number of well-known marketplaces.

What’s normal?

Returns have always been a challenge. The pandemic, with its dramatic increase in ecommerce sales, unfortunately meant a corresponding increase in returns.

So what can you consider a reasonable return rate? Traditionally, it has varied from industry to industry. Signifyd data shows return rates are highest in two verticals: Electronics & Computers, and Apparel, Accessories & Footwear. Our data found that return rates in those two verticals increased a whopping 80% during the pandemic.

We also found that a staggering 81% of chargebacks (up from 78% pre-COVID) can be attributed to “buyer abuse,” which are those times when a consumer has received the order as described and in working order, but decides to keep it and ask for her or his money back, typically by claiming it had never arrived, or was irrevocably damaged. So it’s not just professional fraudsters who are playing the game, but your legitimate customers, too.

Generous return policies essential for ecommerce success

Online retailers have very flexible return policies for a reason. They understand that returns are a critical part of the customer experience. Consumers are more confident when they know they can return items, especially when they can’t see, touch, or try them on before purchasing.

A case in point: almost 83% of consumers in Signifyd’s recent consumer sentiment survey, said they would be more likely to buy again after having a positive return experience with a retailer. Alternatively, 75% said they’d be less likely to buy again after a bad return experience.

But many returns are not honest. There are the impulsive shoppers who suffer buyers’ remorse and return items for no other reason. Or the people who buy a special outfit only to wear it once and then return it. These are in addition to the outright fraudsters out to make a buck.

Institute best practices

Here are some best practices that will help you minimize the impact of return fraud.

1. 1. Provide detailed data about your products. By improving the sizing charts on your sites, providing better photos — especially those that depict colors accurately — and provide better (and more specific) product information in the form of metrics, measurements, and materials, consumers will have fewer valid excuses for attempting to return purchases.
   2. Publish a very clear and accessible return policy prominently on your website: This is one of the most critical steps to protect your business from potential return fraud or even chargebacks later. Your policy should include details on processing time for returns when consumers should expect the refund and any fees.
   3. Institute a “No Box or Label Required” return method. Certain retailers now offer returns without requiring buyers to repackage the merchandise. Instead, a FedEx or UPS employee packs the item for return, effectively acting as a witness to what’s actually being shipped. By doing so, retailers minimize the risk of receiving a decoy product, rocks, or nothing at all.
   4. Invest in return fraud protection solution: New anti-fraud solutions analyze patterns of potential abuse and fraud among those buying online. With Signifyd’s Chargeback Recovery solution, for example, you can tag an order if something seems suspicious. Such systems look at different things: Who is returning the item? Is there a history of ecommerce returns? What does that history look like? Once you understand all this, you can then be comfortable applying your traditional return policy to the majority of your buyers, while using a more specific one for problematic buyers.

Additionally, Signifyd’s Commerce Network will provide you with insights into the identity and intent behind each return request. Quite likely, Signifyd has seen some signal related to the return elsewhere across our extensive network. That type of insight is invaluable.

Finding the right balance

Ultimately, this is all about finding the right balance between providing customers with the best shopping experience and protecting your business. But whatever you decide, you need to be transparent with your policies and make sure that any changes or exceptions are clearly communicated.

Photo by Getty Images

Want to stop returns from causing a major post-holiday letdown? We can help.