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Fighting return fraud through better customer experience

Read “The State of Commerce 2023” report

“The State of Commerce 2023” report

Cover of Signifyd's State of Commerce 2023 report

U.S. retailers lose $18 billion a year to return fraud. As consumers increasingly turn to ecommerce portals — even when purchasing from brick-and-mortar stores — return fraud becomes a more serious concern. About 30% of all products purchased online are returned, compared to nearly 9% in brick-and-mortar stores. A startling number of these returns are fraudulent.

But fraudulent returns are a symptom. There will always be those looking to game the system. But many fraudulent returns apparently occur because customers don’t feel any loyalty or attachment to the company they’re purchasing from. A recent survey of 2,000 consumers detailed in Signifyd’s e-book, “How Retailers Can Rekindle Customer Love and Avoid Customer Abuse,” indicates that a significant number of consumers are ambivalent about the retailers they do business with. 

The good news? By improving customer relationships, companies can reduce their return numbers — and bump up their bottom line.

What you need to know
  • Return fraud costs retailers $18 billion a year
  • More than 14% of respondents told Signifyd they’ve knowingly filed a chargeback they didn’t deserve
  • Survey responses detailed in “How Retailers Can Rekindle Customer Love and Avoid Customer Abuse” indicate customer dissatisfaction plays a role in consumer abuse.


What Is a Fraudulent Return?

First, let’s look at the problem. More and more, retailers are being asked to offer “no questions asked” return policies, under which customers can return any item at any time. So if a return can be completed at any time, what constitutes a fraudulent return?

When we talk about fraudulent returns, we’re talking about two concepts: return abuse/fraud and consumer abuse.

We’ll define “return abuse” or “return fraud” as any scenario in which a customer goes through the process of the return by shipping the package back to the retailer and receiving her or his money back — but the customer was not operating in good faith.

This happens when:

  • Customers purchase an item with no expectation of keeping that item. They are “renting” the item intentionally. They often will not feel guilty about this because they can do it within the parameters of the return policy.
  • Customers send the wrong item back, with the intention of keeping the original item. The customer is able to show a “return receipt,” so they can “prove” they sent the item back. Sometimes, they will send back an identical item that is broken.
  • Customers engage in wardrobing — purchase a number of versions of the same item with the expectation of keeping only a single item. They may feel as though this is expected of them, especially with items such as clothing that require a try on.

Then there’s “consumer abuse.” Consumer abuse occurs when customers purchase an item and then file a chargeback with their credit card issuer rather than returning the item. Sometimes consumers file a chargeback fraud because they find the return process to complicated, Signifyd’s survey conducted by market research firm Upwave found. Other times, they filed illegitimate chargebacks because they were dissatisfied with the amount of time it took their orders to arrive.

Whatever the cause, chargebacks can cost a company a lot; in fact, too many chargebacks can cause a company to lose its merchant processing account. But sometimes customers file a chargeback if it’s easier than the retailer’s return process or if they feel they have no other recourse.

These costs — fraudulent returns, illegitimate chargebacks — can make a difference between a company’s failure or survival. But what can companies do to counter fraudulent returns and stem consumer abuse?

Why Do Customers Commit Return Abuse?

Approximately 14.1% of consumers will ask for refunds even when they aren’t deserved, according to Signifyd’s survey. For the most part, returns occur because the item was the wrong color or style (51%), or the item wasn’t what the consumer expected (35%). These issues can be countered by ensuring that consumers know what they’re buying when they’re buying it.

But 5.2% of returns are consumers intentionally purchasing more items than they intended to keep, 4.1% are cases of buyer’s remorse, and 2.8% are consumers who wanted to use the item once or a few times and then return it. These are customers who are likely fully aware that they aren’t going to end up keeping the item, but they feel justified and supported by the store’s return policies.

Why do presumably otherwise ethical individuals feel free to cheat the system?

It’s easy for customers to think that a big company can take the somewhat minor blow of a single return. But when these returns become systemic, they cut into a company’s bottom line.

What About Consumer Abuse?

In looking at those who filed chargeback for goods not received, the largest majority (29.4%) had received the item, but later than they should have — in other words, they felt cheated themselves. Another 17.2% felt the item was not what they expected, but they couldn’t return it. And approximately 12% simply felt that the company was successful enough to absorb the cost of the transaction.

In other words, customers were “self-serving” their own form of customer service.

How Can You Combat Fraudulent Returns?

At its core, return abuse (and consumer abuse) relate to the relationship between a customer and a business. When customers believe they have been cheated or feel that the company is making more money than it deserves, they are more likely to abuse or subvert the return system.

Companies need to build better relationships with their customers if they want to reduce their returns. That includes:

  • Ensuring that items are delivered on time
  • Measuring and improving customer satisfaction
  • Clearly depicting items on ecommerce storefronts
  • Delivering high-quality goods that meet expectations

Having more restrictive return policies may not matter — a more restrictive return policy may only encourage consumers to feel maligned and therefore encourage them to initiate chargebacks instead.

Further, most consumers have come to expect more lenient return policies, or they may hesitate to purchase from stores with more restrictive policies.

With industry standards moving towards a “free for all” return policy, it may be better for companies to invest time and energy into making sure that customers don’t want to return their items at all. After all, better relationships make for better customers.

Learn More About Defeating Return Fraud

All retailers, whether ecommerce or brick-and-mortar, need to understand return fraud, its causes, and its consequences. While most customers are honest, there will always be customers looking to take advantage of the system. The easiest way to combat return abuse is to build stronger relationships with customers — and that’s also the best way to improve customer satisfaction.

Photo by Getty Images

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Signifyd, the leading commerce protection provider to Digital Commerce 360's top 1,000 merchants, provides an end-to-end Commerce Protection Platform that leverages its Commerce Network to maximize conversion, automate customer experience and eliminate fraud and customer abuse for retailers.