Product Return Fraud and how to stop it.
Product Return Fraud schemes require continued awareness and action from retail businesses
The typical retail business has a lot of competing priorities – improving customer service, managing employees and work environments, crafting compelling marketing that grows the brand’s customer base, and so on. These are the fun parts of the business that have the most direct link to profit and revenue. They’re far more interesting than the more technical components like return fraud.
In addition to being less exciting than other aspects of the business, return fraud also instills fear in some retailers
They’re afraid to find out how much money they’ve lost and how much it will cost to stop future fraudulent activity. They’re also afraid of buying and implementing new technology that could help their loss prevention efforts. And, they’re worried about their reputation. What will customers think if they tighten their return policy? What will the media think if a retailer is just now taking action on return fraud, a problem that’s anything but new?
However, embracing the darker, more technical parts of the business and overcoming those fears are important steps for every retailer to take, mainly because the threat of return fraud isn’t going away. 92% of companies report being victims of organized retail crime (ORC), and during the 2018-2019 shopping year, return fraud rose 35% to a whopping $27 billion
In short, this moment requires every business to stay vigilant.
Three reasons to take product return fraud seriously
Aside from a major loss of revenue, there are other less obvious reasons for businesses to maintain heightened awareness of return fraud.
Technology is changing rapidly
With so many transactions happening online, the technology customers use to make purchases is evolving in the blink of an eye. This means new payment methods (e.g. mobile wallets, cryptocurrency, etc.), international transactions, increased risk of data breaches, and more obstacles to verifying shoppers’ identities4. Even with fast speed internet, there’s still a lag time between the moment a customer places an order and the moment the transaction is confirmed, creating a small window of opportunity for fraud. And, as we move forward, the way we shop will keep changing. The less your company is focused on return fraud, the less you’ll know about these advancements and the ways criminals can take advantage of them. But if you keep return fraud front of mind, you’ll approach each new technological rollout or feature upgrade through a more analytical lens – how can this be abused and how can we stop fraudulent activity before it happens?
Product Return Fraud schemes are evolving, too
Thieves are a creative bunch. When they hit a roadblock with one scheme, they simply create another way to scam you. Case in point – the auction swap. Bad actors can buy truckloads of defective or overstocked merchandise for low prices, but these sales are final, meaning they can’t return the items to the liquidator they bought them from. As an alternative, they go to physical retail stores, buy new versions of the items, and then use the receipts to return the defective versions for full refunds. Where there’s a loophole, there’s a way.
In this instance, vigilance isn’t just about creating a return policy. It’s also about updating it consistently and staying abreast of trends in loss prevention. Return fraud will never be stagnant, and your due diligence could help you stay one step ahead of thieves.
Every penny counts when retail is in trouble
Product return fraud obviously means lost revenue for retailers as well as piles of junk or damaged merchandise that need to be handled, shipped, and liquidated. It takes money and manpower to process these items, and these are resources that could be directed toward other mission-critical tasks.
But also, retailers just can’t afford to give a bigger piece of the pie to thieves right now. Industry growth is slowing and so is consumer spending5. Failing to control return fraud means you’re hemorrhaging money at a time when it’s not coming in as fast or as often. This could result in making cuts elsewhere (e.g. staff, product, etc.) to make up the difference.