Return Fraud in eCommerce- What Is It and How Do You Fight It

Tackling Ecommerce Returns Fraud The Right Way

We all have watched ‘Catch me if you can,’ and although we might be fascinated by the character, Fraudsters can be a real problem in the real world. Ecommerce businesses have to deal with ecommerce returns fraud regularly, and these fraud cases can have a significant impact on these businesses. Most people take advantage of these businesses' lenient ecommerce returns policy to defraud ecommerce businesses.

The competition in the ecommerce sector is cut-throat, and the businesses constantly have to improvise on the products and shopping experience.

Return is an integral part of this experience, but it is a loss-making venture for the companies. Therefore, businesses focus on optimizing these processes as much as possible. Some e companies may leave loopholes in their returns policy and returns process.

While as an ecommerce business, you should focus on making the returns process as smooth and hassle-free as possible, it is essential to consider the cases of ecommerce returns fraud. As you scale, you may see a rise in the number of fraud cases with your platform, and you may have to take some necessary steps to address these issues.

For you to be able to do that, you should be familiar with the concept of ecommerce returns fraud. This blog will take a deep dive into the issue and discuss various measures that you can implement.

1) What Is Ecommerce Returns Fraud?

If you are active on social media, you will often encounter cases where the companies receive a brick or an empty box for the return instead of an actual phone. This is a typical case of returns fraud.

The technical definition of ecommerce returns fraud is using the loopholes in the terms and conditions and the ecommerce returns process to exploit or defraud an ecommerce business in the returns process for financial gains.

Over 6% of returns in the ecommerce sector are reported as frauds. As the ecommerce sector continues to grow and become a vital part of the economy, such fraudulent activity has been condemned by the judiciary systems in most states and countries.

While some consider ecommerce returns fraud theft and a felony, others may consider it a misdemeanor. However, taking legal actions against such frauds may not be financially optimal as these fraudsters do not typically give their real credentials while placing the order.

That is why ecommerce companies have adopted various methods to reduce these cases rather than taking legal action such cases. Although it might not be a solution that eradicates the problem, these methods seem to have significantly reduced the number of cases. In order to understand the right way to reduce such cases, let’s first take a quick look at the most common causes and methods of returns fraud.

2) What are some of the common ecommerce returns fraud tactics?

There can be cases where the customer can defraud your business unknowingly. However, there are cases where a lot of thought and effort is put into the returns fraud to exploit your business.

Some of the common techniques of ecommerce returns fraud include: these methods and tactics can be used by individuals or an entire team that engage in such activities.

2.1) Fake Receipts

One of the most common methods of returns fraud is that the entity uses fake digital or physical receipts. These receipts are then used to claim a refund against a non-existent purchase from the targeted retailer.

2.2) Returning Stolen Goods

There have been multiple cases where people have tried to return stolen goods while claiming they have lost the receipt. This practice is generally used to target more prominent, lenient organizations with their returns policy.

2.3) Receipt Switching

Receipts are proof of purchase and are used to defraud the organisation. In the case of receipt switching, the fraudster makes a purchase and obtains a receipt for the purchase. Later, they acquire an identical object from the store and claim a refund against the item, effectively getting the item for free.

2.4) Wardrobing

People tend to use the item once or twice and then return the item for a refund. This tactic is usually prevalent in the fashion sector, primarily with luxury items. The publishing sector also struggles with these issues as people just return the book once they are done reading it.

2.5) Shop listing

In this method, the fraudsters manage to secure receipts of purchases that are often discarded outside stores. They then obtain these items from the store and claim a refund from the store against these items.

2.6) Price Switching

Before returning the item for a refund, the fraudsters change the value of the item on the price tag or the receipt to a higher value so that they can claim the refund for the increased value.

2.7) Exchanging the products

When the shoppers buy a new item, they use the older or non-working version of the same item to return the product. This can also involve using items with similar physical features that have a lower value and are swapped with high-value products to claim a refund.

Although these methods sound silly and some can come off as mistakes, fraudsters use these methods to commit ecommerce returns fraud, potentially for enormous monetary gains. In each case of fraud, your company most likely loses the money of the purchase as well as the product other than incurring the cost of forwarding and reverse logistics. 

If these cases increase significantly, it can have a severe impact on your business's bottom line. That is why it is essential to prevent such cases on your platform.

3) Tips to avoid Ecommerce Returns Fraud

There are multiple ways where you can ensure that the returns, exchanges, and refunds claimed on your platform are legible claims made against actual purchases by the original owner/customer that made the purchase. Although some methods may be industry-specific, you can use these methods on your platform irrespective of your product category.

3.1) Impeccable Returns Policy

A solid and loophole-free returns policy can be your best method to combat ecommerce returns fraud. The fraudsters usually exploit your organization's loopholes in the returns policy and the quality check process.

Set clear guidelines for the quality check of the returned products if you deal with items of higher value. To reduce your exposure, you can also include other criteria like the original receipt/purchase invoice, price tags, original packaging, etc.

3.2) Store Credit/Gift Receipts

One of the best ways to remove your business from the crosshair of fraudsters is to provide refunds in-store credit or gift receipts. As this monetary compensation is not helpful, they do not waste their time and effort. However, you have to state these terms clearly in the returns policy of your website and ensure that it does not hamper the returns experience of your genuine customers.

3.3) Fraud-detection software

When an ecommerce returns fraud is committed, it is usually part of a more extensive operation. If you find frequent fraud cases in your returns, it is better to invest in fraud detection software. This software tracks the customer's digital footprint and warns you if they detect suspicious activity.

3.4) Identity Verification

If you deal with high-value items, it is better to incentivize customers to verify their identities with your platform. If fraudsters dare to defraud your organization even after identity verification, you can take legal action against them. But, you have to ensure that the identity verification process is straightforward yet efficient.

4) Conclusion

As technology becomes more intricate, it becomes more complex for ecommerce companies to filter the purchases and returns on their website. This accessibility to technology and the importance of convenience in the customer experience on ecommerce platforms leave them exposed to ecommerce returns fraud.

Even though the returns or exchange feature is vital to the customer experience and growth of an ecommerce company, the feature can impact the bottom line. Therefore, it is important to reduce and manage the number of fraudulent returns on your platform. 

Many methods can help you reduce these cases. If you deal with high-value items, it is better to get identity verification and fraud detection platforms to assist you in the task. On the other hand, if you deal with low-value items, it is important to formulate a clear, concise, and foolproof returns policy and ecommerce return process.

Fraudsters tend to exploit loopholes and discrepancies in your returns process. Therefore, it is crucial to monitor your returns and analyze them for loopholes. While you are implementing measures to tackle ecommerce returns fraud, the customer experience of actual and genuine customers mustn't be hampered.

Therefore, a returns management app like ClickPost becomes vital to your customer experience. Fraud cases can also typically rise when you adopt a multi-modal returns model.

Consequently, you can use the physical stores to establish a stricter quality check process to tackle fraudulent returns. In the end, you may not be able to eliminate this unwanted element of ecommerce returns. Still, the next best thing you can do is minimize them without impacting your consumer experience.

5) FAQs about Ecommerce Returns Fraud

5.1) What is the best way to tackle ecommerce returns fraud without investing in more software services?

The best defense against fraudulent returns is a foolproof returns policy. Fraudsters typically exploit the returns and refund policy loopholes for monetary gains. Another important step you can take is implementing a stricter item verification while collecting the return.

5.2) Can I take legal action against ecommerce returns fraud?

In most cases, returns fraud is considered theft of property. So, you have the legal grounds to pursue a civil or criminal suit against the fraudster. However, the judicial laws with respect to ecommerce returns fraud may change according to the region, so you may have to do some additional research and decide if the fraud committed is worth the time and effort of your company.