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Return fraud: The retailers’ complete guide to battling consumer abuse

Managing Return and Other Consumer Abuse

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Consumer Sentiment ebook cover with woman looking at returns

Return fraud. Professional returners. Serial returners. 

These are just a few of the terms that have joined the buzz words from the dark side of ecommerce. And it’s not just talk. Profiting off of phony returns has become an industry. And like so many things, the problem is getting worse in the era of coronavirus.

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

These underground outfits take a cut, say 15% to 40%, of the refund. In return they do the talking with the retailer, fabricating some complaint or customer service flaw, that produces the ill-gotten refund.

Some even say they’ll return a shopper’s item for a refund. Instead of shipping back those expensive jeans or that smartphone or a $24,000 gold chain, they ship back a knock-off of the product, an empty box or even a potato. Yes, a potato. 

What you need to know
  • Return fraud is a growing problem, costing U.S. retailers more than $18 billion a year, according to Appriss and the National Retail Federation.
  • Professional return fraud rings are now promoting their services on message boards and elsewhere on the web.
  • Retailers can take specific steps — from improving product descriptions to leveraging innovative technology — to protect themselves from serial returners and consumer abuse.

How could anyone fall for the potato trick? Take a shopper using PayPal, for instance. All the shopper has to do is provide a PayPal tracking number for the return in transit — easily obtained by mailing any package back to the merchant. That’s proof enough that the product has been sent back, which is good enough for a refund, whether what arrives is the actual product or a rotting tubor.  

Signifyd is intimately familiar with these sorts of scams, given the millions of ecommerce transactions we see on our Commerce Network. In the Electronics & Computers vertical and the Jewelry vertical, we’ve identified return fraud cases worth thousands of dollars. A classic: A buyer purchased an expensive piece that probably weighed three pounds in its original packaging. The return package he sent to try to secure his refund weighed 15 grams. 

Returns have always been a challenge. The pandemic with a dramatic increase in ecommerce sales has meant an increase in returns — making that challenge even tougher.

So what is a reasonable return rate? That varies greatly by vertical. Signifyd data shows that return rates are the highest in two verticals: Electronics & Computers and Apparel, Accessories & Footwear. 

Signifyd data shows that return rates in those verticals increased 80% during the pandemic, compared to pre-pandemic numbers. The increase could be attributed to any number of reasons — anything from financial pressures among consumers who’ve lost their jobs to retailers’ logistics complications early in the pandemic leading to delivery delays and errors. 

We see further evidence of bad behavior in our chargeback data, which we sort by root cause. We have found that a staggering 81% of chargebacks (up from 78% pre-COVID) can be attributed to “buyer abuse,” those cases in which the buyer has received the order as described and in working order, but decided to keep it and ask for her or his money back. 

Unfortunately, it seems a small, but significant, number of consumers have no qualms about returning items, requesting refunds or filing invalid chargebacks based on self-serving justifications. A recent Signifyd survey of 2,010 shoppers asked consumers who had filed an item-not-received chargeback, even though the item had been received, why they would do that. Nearly 13% of respondents in the 2020 Consumer Sentiment Survey conducted by polling firm Survata, said they felt justified because, “the company I purchased from is very successful and wouldn’t miss the amount of my purchase.” 

Innocent returns and abusive returns

Not all returns are bad or done with malice. Many online retailers by design have very flexible return policies. They understand that returns are a key part of the customer experience they offer. They know that consumers take comfort in being able to return a purchase, particularly when they can’t see, touch or try it in on before buying it.

In fact, in Signifyd’s most recent consumer sentiment survey, nearly 83% of respondents said they would be more likely to buy again from a retailer or brand after having a positive return experience with that retailer or brand. Conversely 75% said they’d be less likely to buy again after a bad return experience. 

And many times, a consumer’s reason for making a return is understandable. For instance, 51% of those polled by Signifyd said the reason they made their most recent return was because the item they received, “was the wrong size, color, material, etc.”

Other returns fall into a grayer area. What about the impulsive buyer who suffers buyer’s remorse? Or the wardrobers who buy the same shirt or blouse in three different sizes or three different colors? Is it return fraud when they return goods?

There is no set rule book when it comes to returns. In fact, if you’re a merchant, you write the rules. In thinking about what those rules should be, consider the different factors that come into play and decide which carry the most weight for you and your business. Things like: 

  • Protecting your business from return fraud by tightening your return policies and even prohibiting returns of certain items, with the understanding that might cost you business and customer lifetime value.
  • Having a more generous and less restrictive return policy with the understanding that that might open you up to return fraud.
  • Protecting your customer experience and enhancing the value of a buyer who potentially turns into a repeat customer due to a previous positive and rewarding experience.

Addressing return fraud

Once you’ve determined your priorities, it’s time to assess the effect your current return policy is having on your business to see if there are places where it needs rethinking. A checklist:

  1. Do you even have a problem that needs to be addressed? This is a great starting point. If the cost of the return fraud itself exceeds the cost of preventing it, then immediately begin the work to mitigate the risks and potential losses that you may incur by doing nothing. 
  2. How do you factor in returns when considering customer lifetime value? Having a better understanding of who and why your buyers are returning merchandise will provide you with a comprehensive view of their return behavior. In turn, this will reveal opportunities that you can use to mitigate the rising costs of keeping them as your customers.
  3. What do you consider return fraud? Every business has a different perception of return fraud and how much of a risk appetite they have. We wouldn’t recommend a one-size-fits all return policy. You risk insulting loyal customers by putting them in the same category as any other buyer, some of whom may have dishonest intentions. You need to weigh all this against the importance of customer experience and the cost you might incur by adding friction to it. 
  4. Where are returns costing you the most? Are there certain SKUs producing an outsized number of returns? Are there one or two common reasons customers give for returning items? Decide where return costs are the greatest and develop impactful strategies to address the problems that are costing you the most. Then work your way down the list. 
  5. Are you being plagued by known, bad actors? Serial abusers don’t stop with one retailer. They take advantage of many. Signifyd sees this every day. We have data across thousands of retailers around the world and this shared information allows us to spot patterns of return fraud affiliated with certain accounts. We can prevent those return fraud patterns from spreading. 
  6. Have you considered the tell-tale signs of return fraud? Below is some additional data you can use to detect potential instances of return fraud:
    1. Return history: Is there a pattern of returns in a short amount of time right after purchase? How frequently does this occur?
    2. Different variations of the same products are placed within the same order:  Are you seeing different sizes for the same item or different colors for the same item?
    3. The return is shipped from a location that is different from the delivery location. Signifyd has recently seen an influx of cases in the last few months, where merchandise that was supposed to be delivered to Portland, Oregon, was being returned from Austin, Texas, for example. This is a red flag which raises the following questions:  (1) Why is this merchandise being shipped from somewhere other than its delivery address? (2) What merchandise is actually being returned to you?
    4. Return package weight:  Is it the same as the original package weight? Signifyd has also seen a pattern across the network where merchandise being returned does not match the original shipment’s weight. There is a risk you’re receiving an empty envelope, empty box or box filled with sand. 

Best practices to prevent return fraud

Having a very clear, accessible return policy published on your website is the first step to protecting your business from potential return fraud or even chargebacks later. Your policy should include details on processing time for returns, when they should expect the refund and any applicable fees.

You may also want to consider a “No Box or Label Required” return method. Certain large ecommerce businesses offer this option, which most consumers believe is mostly for their own benefit, e.g., convenience, customer experience, retention, etc. To some extent, that’s probably true and it’s good PR for the companies leveraging this method.

But it’s possible that large retailers are suffering revenue leakage from serial returners. Even Fortune 500 companies are victims of return fraud and are receiving empty boxes back instead of their actual products. In fact, they’re more susceptible because there’s a perception that because they’re processing thousands of orders per day, a buyer can stay under their radar.

In response, some of these retailers now offer returns without requiring buyers to repackage the merchandise. Instead, a FedEx or UPS employee, for instance, packs the item for return, putting another set of eyes on what’s actually being returned. By doing so, retailers minimize the risk of receiving a decoy product or nothing at all. You might also improve sizing charts on your sites and provide better (and more) product information.

Reevaluate product descriptions and free-shipping policies

 Remember, about half of the respondents in Signifyd’s consumer sentiment survey said that the reason for their most recent return was because the item they received was either the wrong size, color, material, etc. Another 35% said they received something that was different from what they expected. 

Think how much better those numbers could be if you provide your buyers with the tools to validate what they’re buying — including sizing guides, 360-degree product views, customer reviews and how-to videos. 

Free shipping should be just that, regardless of how much is purchased. But some retailers choose to only offer free shipping if a buyer meets a cart total. What is the loophole? Serial returners buy merchandise that have no intentions of keeping. That way they can meet the spending threshold to get free shipping or free returns, or both. In reality, a buyer may want only one item, maybe the cheapest one. And once all items are received, the rest of the shopping cart goes back to the retailer. Do the math: Are you making more money with free shipping or is it costing you money because of returns?

Return abuse prevention technologies

Traditional return policies may have served the ecommerce space well for years, but things change. The space has evolved so much, so quickly, that you need to protect yourself at all times from fraudsters who quickly take advantage of loopholes in your policies.

One way to do that is by analyzing patterns of potential abuse and fraud among those buying online. With Signifyd’s Chargeback Recovery, you are able to tag an order if something seems suspicious. These tags serve as a notification that certain discrepancies need to be resolved or that certain red flags need to be investigated.

Such systems look at different things: Who is making the return? Is there a history of 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.

You need a way to support this method at scale because tracking each order for returns behavior can be demanding. Leveraging Signifyd’s Commerce Network will provide you with a peek into whether a return is a first for your buyer, or something that has been seen across our network. That type of insight is invaluable. Even if a first-time returner’s actions don’t match your definition of return fraud, we might have seen red flags on that same buyer on other stores. Having that insight allows you to take appropriate proactive action based on your particular policies. 

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

Protecting your business from abusive returns is no doubt important. But that can’t come at the cost of damaging your relationship with your loyal customers. After all, your existing customer base is an asset that deserves to be protected. 

Photo by Getty Images


 

Let's tackle your return fraud challenges together

Janice McNally

Janice is Signifyd's director of chargeback recovery. She is a certified fraud examiner and a recognized expert in online fraud, risk management and chargeback recovery.