It is a fraud when a customer is trying to cheat the seller via the product return process. Fraudsters will abuse the return policy when committing return fraud. Return fraud is particularly common in countries like the United States, where the return policies of most merchants are relatively flexible and fuss-free. As a result, many people have taken full advantage of such generosities.

Types of return fraud

There are many types of return fraud, such as:

Receipt fraud: Scammers will use a fake or stolen receipt when returning the product to the retailers.

Wardrobing: Fraudsters will purchase and use the item for only one time with the price tag attached, and then return it immediately. It often happens in the fashion industry.

Returning stolen merchandise: Criminals will enter the store, and pick up an item that they haven’t actually paid for. After that, they will pretend that they have brought the item and demand for a refund.

Price tag switching: Unscrupulous people will place a higher price-tag on the item in the hope of getting back more money.

Employee fraud: Some fraudsters will get help from the employees in the stores to commit the return fraud, such as approve the return request without further verification, or even help fraudsters by stealing things from the store.

The worrying trend of return frauds

According to a survey conducted in the US in 2022, 65% of those surveyed (aged 18 to 29) admitted to engaging in return fraud practice. This shows that the return fraud cases are becoming more common among US young adult shoppers.

Merchants have to bear huge losses because of the return fraud incidences. According to the summary of a survey done by the National Retail Federation and Appriss Retail, a total of $22.8 billion out of approximately $212 billion of returned online purchases are fraudulent.

Due to the prevalence of return frauds, some merchants have had to increase the prices of their goods to cover the losses. This, however, will negatively affect the customer experience for those making genuine purchases.

How merchant can do to minimize the return fraud?

To reduce the return fraud to the minimum, there are some actions that merchant can take.

Eliminate cash refund

Fraudsters usually target for cash when committing return frauds in physical stores. Hence, merchants can stop giving refunds in cash so that fraudsters won’t be so inclined to commit the frauds at their stores.

For legitimate customers, merchant can consider to provide cash voucher or gift card as a replacement. By doing so, merchant can make sure that only real customers will initiate the return process and that the fraudsters won’t benefit from this.

Request for additional verification info

Enforce the requirement to request for additional information as part of the goods return process. Often, merchants only require customers to present the receipts when returning the goods.

While this makes life easier for some legitimate customers, it can also lead to an opportunity for the fraudsters to commit the crime. To avoid this, merchants can request for additional information to authenticate the return request.

Basic verification requirements:

• A government-issued ID of the customer with their photo and name
• Contact details such as phone number or email address
• The last four digits of the credit card number used if paid by credit card

Conduct constant review of return policies

Merchants must constantly review their return policies and scrutinize them for loopholes. Any shortcomings in said policies should be rectified as soon as possible.

Many merchants have implemented return policies in the hopes that they can keep return frauds from happening too frequently. However, if the merchants didn’t review the policy periodically, fraudsters may have a chance to find a legal loophole to sneak back in.

Ideally, merchants should also share information with other merchants so that the fraudsters won’t be able to perform the same fraud at different merchants.

Record all purchases and customer identities

Merchants need to record all the order details and customer identities during the checkout process. This will help to verify if a purchase looks suspicious or not. It is also advisable that merchants make use of SMS verifications to verify the customer’s identity.

Conclusion

In a nutshell, return fraud is highly detrimental to the merchants considering the magnitude of losses suffered. In order to minimize this, merchants need to make efforts to identify and stop the fraud from happening.