The fallout from 2016 return fraud has yet to be tallied but, in 2015, it was estimated to cost retailers $2.2 billion during the holiday season and between $9.1 and $15.9 billion annually, according to the National Retail Federation (NRF). The post-holiday season is when the issue tends to peak as scam artists attempt to return clothes or other products for refunds.
There are, of course, legitimate reasons for product returns: clothes are the wrong size, the product is a duplicate of something a person already has or is unwanted for some other reason, or the product was in damaged condition when received. You don't want to lose these customers by denying returns for these legitimate reasons, but you still need to protect yourself against fraudulent returns. Below are some of the most popular return frauds and ways to combat them.
Stolen Merchandise Fraud
As eCommerce grows, so does merchandise delivery to the home without any requirement that someone be there to physically accept the product. That means greater chance of stolen, and then fraudulently returned, merchandise. Retailers can help protect themselves against this type of fraud by requiring receipts with any returned merchandise and requiring that merchandise be returned within a specified time period. According to the NRF, 10 percent of all returns without receipt are fraudulent. A similar scam involves a person attempting to claim a refund with just a receipt, and not including the merchandise. To help avoid complaints from legitimate customers, make sure this policy is clearly stated in the ordering area of the website and consider including the information on the receipt delivered with the product.
Additionally, when dealing with returns that are deemed to be legitimate, look for ways to make any return a positive experience by working with a trained contact center staff to encourage exchanges rather than refunds.
One of the favorite types of return fraud for many is "renting" clothes, wearing them once, and then returning them for a full refund. According to the NRF, nearly three-quarters (72 percent) of all retailers are victims of this type of fraud. Last April, a former Miss America was charged with attempting to swindle Macy's in a $5,000 return scam. Merchants can combat this type of fraud, known as wardrobing, by accepting only returned clothes that show no signs of wear. One of the telltale signs is a label or tag that is removed or damaged; this was one of the tipoffs in the fraud against Macy's. Stains are another indication of wardrobing. Beyond this type of fraud, your support staff must be on the lookout for signs of other rental fraud, such as with video equipment (for weddings, graduations, etc.).
Digital Gift Card Fraud
Research shows that digital gift card fraud spikes right after the holidays. While convenient for the giver and the recipient, digital gift cards are becoming increasingly popular ways of perpetrating fraud. According to ACI Worldwide, during 2015, the last year for which full figures are available, 9.5 percent of all online fraud attempts used digital gift cards. GiftCard Partners recommends working with a fraud prevention partner to thwart these attempts. You could attempt to build your own fraud prevention department, but as GiftCard Partners points out, this is a much more expensive option.
More Attempts Expected
The issue of fraudulent return attempts will continue to grow in 2017, so retailers must protect themselves and their customers (who pay for the fraud through higher prices) by using a comprehensive set of fraud-fighting solutions including high-tech tracking that links customers to receipts and can identify customers with excessive percentages of returns, as well as old-tech ways of inspecting returned merchandise for signs of use or abuse.
There is no perfect solution. But when you keep an eagle eye on new technology loopholes and stay abreast of new fraud tactics, your retail business will minimize this mounting problem.