How to Avoid Ecommerce Return Fraud

Since the start of the pandemic, ecommerce sales have become a steadily increasing portion of total retail sales, reaching 21.3% of sales last year compared to 15.8% in 2019. And the trend is only expected to increase as people have grown accustomed to the convenience of online shopping.

The positive news for those selling online comes with one major concern: the high rate of return fraud and abuse. Experts say that online returns have more than doubled year-over-year in 2020, with more than 7.5% being labeled as fraudulent. These fraudulent returns are often the result of criminal actors and malicious customers who repeatedly return packages that contain broken, old, or cheap imitations of products. Some retailers have even reported receiving boxes filled with dirt.

A Solution to the Return Fraud Problem

When retailers are being confronted with new threats, they need new ways to protect themselves. Protecting the enterprise from return fraud is particularly challenging, given the importance that legitimate and valuable customers place on the ease of returns when making a buying decision.

Retailers don’t want to add friction to the return process and risk turning legitimate customers away. And retailers especially don’t want to refuse a return from a legitimate customer and risk losing that customer for good.

Just how big of a deal are return policies and practices in consumers’ eyes? In a survey conducted for Signifyd by market research firm Upwave, 57.3% of consumers said a retailer’s return policies have a major or moderate bearing on where they shop. And 75% of respondents said they would stop patronizing a retailer based on a bad return experience.

Where to Start Addressing Return Fraud

So, given the stakes, what should the online retailer do? Let’s take a look at some practical questions that will help you know where to start addressing return fraud.

1. What’s your definition of return fraud? Be sure you understand your comfort level with risk and the potential for loss to return fraud. Creating a “one-size-fits-all” return policy is not recommended. Why? Not all returns come with the same level of risk. You don’t want to treat loyal customers and criminal actors the same when it comes to returns.

2. Where do you find that returns are costing your store the most? Monitor your SKUs to see if there are any patterns in your returns. Are certain products frequently returned? Is there something about the product that makes it especially attractive to return fraudsters? Is it easy to replace with a knock-off, for instance?

3. Was your retail outlet hit by career criminals? Are your fraudulent returns coming from “customers” who you can identify as engaged in similar behavior on other retailers’ sites? This insight requires cooperation from other retailers—perhaps other brands under a common corporate parent or other non-competitive and cooperative retailers.

4. Do you know where to look for signs of return fraud?  
   1. Return history: Do you notice a pattern of returns during a short span of time right after the original purchase? Note how often this occurs.
   2. Returned from address: The returned item is returned from an address different from the delivery address. Signifyd has recently seen cases where merchandise that was supposed to be delivered to Portland, Oregon, was being returned from Austin, Texas, for example. This is a red flag that raises the following questions:  (1) Why is this merchandise being shipped from somewhere other than its delivery address? (2) What is the actual merchandise that is being returned to you?
   3. Return package weight: In order to provide a superior customer experience, some brands issue a refund when a customer brings the return to a UPS Store, for instance, and the package is scanned for shipping. It’s important for merchants to confirm that the incoming package is the same weight as the original purchase. If the weight of the return package does not match the weight of the original purchase, you might be facing an incidence of return fraud.

Avoiding Return Fraud

Answering the questions above is a good way to prevent return abuse on a case-by-case basis, but it’s hard to scale when you’re working case by case. So, how can a merchant devise a broader return fraud strategy?

• Put your consumer data platform (CDP) to work: Many retailers have deployed or are in the process of deploying a CDP. Though it’s meant as a marketing tool, why not go off-label and leverage your CDP data to establish a baseline for return behavior—and to spot when a customer is deviating from the norm? Granted, it’s not a rock-solid solution, given that it's a limited data set—your customers. And depending on what you sell, you might not see repeat customers with high frequency, but it does provide a data-driven way to begin to manage fraud.
• Widen your data net: Rather than relying solely on your CDP data, consider building a network with other brands under the same parent company. Or enlist other non-competitive retailers who are looking to do some net-widening of their own.
• Seek professional help: There is no shortage of companies that gather identity-centric data. The field is exploding, meaning there are new entrants. This would be the time to help steer their product roadmaps toward the return-fraud protection you need. Knowing who your customer is and how they have behaved historically can go a long way to determining the level of risk involved in any given return. Or seek out a technology tool designed specifically for the job. While the field of automated return fraud prevention is new, technological solutions designed to stop return fraud exist and might fit your needs.

Staying on top of return fraud is not easy. The threat of return fraud varies by retail vertical, product, and price. And the risk that a return request is fraudulent depends on whether the consumer is a new customer, a known customer, or a loyal customer. In short, retailers don’t necessarily want to rely on a one-size-fits-all approach to returns.

The nuances involved in monitoring and preventing return abuse lend themselves to an intelligent and automated solution that does the work of detecting return fraud. It’s a distinct advantage in the competitive world of ecommerce to have the right tools that help you measure your risk for return fraud, guide your decisions on accepting returns, and help you avoid the problem from the start. Creating a long-term, flexible strategy will allow you to avoid losses while building goodwill with some of your best customers.

Contributed by the Editorial Team of Miva Partner Signifyd.