Digital transformation has become an unavoidable process all businesses and organizations need to go through if they want to stay competitive in today’s market. Brick and mortar places are slowly becoming a thing of history as most people prefer to do their business online without having to be physically present. It is easier which automatically makes it less stressful and as an extra bonus, it is also less time consuming. Who would want to spend their time traveling to a certain location, browsing for a certain product and then waiting in a line in order to purchase it, when you can just search for it online and buy it with just a few clicks? The best part of online shops is that they are open 24\7 so customers don’t have to change their schedule in order to visit a certain shop.
By transferring parts of their business operations online, retailers have managed to reach a wider audience and expand their business. But unfortunately, not everything about transferring to online shopping has been as good, it has also resulted in an increasing number of customers misusing return policy resulting in significant damages for retailers.
What is return fraud?
Return fraud encompasses all occasions when customers initiate a return procedure for items that are not eligible for a return or refund and by doing so stealing from a retailer. Even though return fraud can actually turn out to be an honest mistake from the consumer, the truth is that the majority of cases are the result of malicious intent. Regardless of intention, in both cases, it will result in merchants suffering from revenue loss.
The most common types of refund fraud are:
Wardrobing, or free renting: This happens when customers buy items that they plan to use only a few times after which they will return them. This is the most mild type of return fraud and it is sometimes considered a victimless crime. But the truth is that in many cases, merchants will be unable to resell these items, at least not for the full price.
Opportunistic: Sometimes fraud will not be pre-planned, but rather just opportunistic. For example, sometimes buyers will request a refund because they have not received something on time as delivery is delayed but once the item arrives they will not inform the seller and pay for it again.
Stolen Merchandise Return: This happens when a cybercriminal uses stolen payment methods to purchase the item which they will then return for a refund. This can cause double damage for the merchant as the original cardholder will initiate chargeback once they notice the charge.
Bricking: This is a process of returning an item after stripping it from valuable components to render it unusable. Not only did the merchants have to refund the item, but they also lost the value of the item as it is no longer usable. This can also cause reputational damage to the business as sometimes they will resell the item without realizing bricking happened and the new customer will end up returning it again. This type of return fraud is most common with electronic devices.
How to protect your business against it?
Luckily there are some actions you can take to minimize the risk of cyber fraud happening to you.
Make sure your return policy is simple, understandable, and easily accessible for customers. You need to have a reasonable and simple set of parameters for returns so your customers can understand what is expected from them when it comes to the return. It also needs to be easily accessible so make sure it is clearly stated on your page and include it during the checkout process and with an invoice.
Start using fraud prevention tools to stop return fraud before it even happens. By using tools such as data enrichment, device fingerprinting, email or social media lookup you can stop return fraud before it even happens as you can use them to recognize which customers have fraudulent intentions and which ones are legitimate customers.
Require identification or specific contact information in order to process the return. In order to confirm the identity of the customer, you need to ask them to provide you with the contact details used during the payment process and cross reference it with the details you have.
Try to eliminate cash returns as much as possible. By offering cash returns you are offering cybercriminals incentives, but when offering store credit or exchange cybercriminals will lose interest as they have no use from either.