Ecommerce Return Fraud: Best practices to protect your business

Ecommerce return fraud

More and more businesses are transferring their business operations online in order to reach more customers and to accommodate government restrictions enforced due to Covid-19. This has been beneficial not only for the merchants but also for the customers as everything they might’ve imagined is just at the tips of their fingers. From artwork and clothes to jewellery, plants or even exercise equipment, there is no limit to what you can find online. The same goes for merchants, they can reach customers anywhere in the world regardless of how small or specialized their business is and they can reach customers expectations more easily.

But, there are some risks related to ecommerce, as fraudsters also want to exploit the benefits it brings, unfortunately for malicious purposes. The biggest fraud threat merchants face is return fraud

What is return fraud?

Return fraud happens when a customer starts a return process for goods that weren’t eligible for a return or refund and abuses merchants’ return policy. Sometimes the return fraud can happen as a result of an honest mistake from the customer, but more often fraudsters’ intentions won’t be as honest as you would want to. It is estimated that the return in 2020 had cost the retailers around $550 billion.

No ecommerce business is safe from return fraud, regardless of its size. While it is easier for the bigger businesses to deal with the loss, that doesn’t mean they don’t get severely hit with a return scam. For example, in 2019 Amazon was affected by the biggest European scam ever that caused damages of $370k. The customer was buying items from Amazon, returning the boxes filled with dirt so it would match the original items’ weight. He would then resell the original item and receive the refund from Amazon. While this was the biggest European scam, it doesn’t even come close to the American one where Erin and Leah Finan scammed Amazon for the amount of $1.2 million by using a similar scheme.

What can you do to protect your business from return fraud?

With so many different types of return fraud like wardrobing, bricking, empty box fraud, stolen merchandise fraud and more, it is hard to know where to start with protecting your business against fraud attempts. 

Luckily, the tips below will help with that. 

Update your return policy. 

Your return policy needs to be simple, easily understandable and most importantly accessible to the customers. It is your first line of defence and by setting clear parameters for returns it would be easier for your customers to understand what is expected from them.

  • Condition – Clearly state in which condition merchandise needs to be returned and which documents need to be provided.
  • Time Limit: Set a reasonable time limit in which it will be possible to return the item. This can help you prevent wardrobing fraud. 
  • Shipping: Make sure the policy is clear enough that the customer understands how return shipping needs to be done and if there are related requirements they need to be aware of.

Implement fraud prevention tools.

Fraud prevention and data analytics tools like email or social media lookup tools, device fingerprinting or data enrichment are extremely useful in recognizing who is a legitimate customer and who is a fraudster as they collect additional information about your customers and use those data to notice any discrepancies. This can prevent account takeover, identity theft and similar cyberattacks fraudsters use for return fraud.

Ask the customers to provide a reason for return. 

This will make it easier for you to recognize any patterns and trends which in return will help you notice any red flags like a certain item constantly getting returned because of the same reason.  Not only can this indicate fraudulent action but it also might give you an idea about which of your products are not performing well.