eCommerce

Prevent fraudulent returns and reduce eCommerce costs

Mariluz Sampalo

Mariluz Sampalo

Dec 6, 2022

returns fraud are a common issue in ecommerce

Inside this article

  • iconWhat is return fraud?
  • iconTypes of returns
  • iconHow to lower the cost of returns fraud
  • iconConclusions
  • As an online store, there are countless moving pieces that can decrease your profit margins and cause unnecessary costs, such as shipping rates, software maintenance, returns management, etc.

    Although not all of these things can be avoided entirely, they can all be limited to a certain extent. In fact, did you know that for every $100 of returned merchandise, retailers lose $10.30 to fraud? And during the holiday season, fraudulent returns rise by 70% compared to the rest of the year.

    Despite all the costs that you will inevitably face as an eCommerce business, return fraud can be particularly damaging, especially if you aren’t measuring it and have no way of knowing how much it’s affecting your business.

    What is return fraud?

    Return fraud is a common situation for online retailers. Basically, it happens when a buyer tries to trick the online store through the return process.

    Fraudulent returns are seen as abuse, since customers can return empty boxes, a copy of the original item, an already used item (wardrobing), stolen goods, etc.

    Because of the frequency at which this type of fraud happens, some online stores result to making strict return policies that can harm current customers and jeopardize the process of acquiring new buyers. 

    Instead of doing this, what they should do is reward loyal customers and penalize those who are trying to scam them.

    What is return abuse?

    Although there’s malicious intent behind return fraud, return abuse, on the other hand, occurs when a customer exploits a company’s official return policies to the point where it’s no longer profitable for the company. For example, a customer might frequently order multiple items in multiple sizes and colors and then return most of the products. This is especially common when the returns are free.

    As abusive as this practice may be, it’s legal and therefore can’t be considered return fraud.

    Types of returns

    Return fraud is a phenomenon that can be quite costly for online retailers. However, not all returns damage a business. Legitimate returns exist and are beneficial to the health of an eCommerce business. They have a direct impact on customer satisfaction since returns help fix issues like the arrival of wrong or broken products or problems with sizing and product descriptions.

    Returning stolen items for store credit 

    This is one of the most popular forms of return fraud. In order to receive store credit, the customer will send back items they actually stole from the store. This way, they can purchase items for free.

    Nowadays, because of the increase in return fraud, most stores ask for proof of purchase in order to process a return. Proof can come via the purchase invoice, order number or email address. This is one of the easiest ways to prevent the return of stolen items or items that don’t actually belong to your store.

    Buying something and returning a different item

    This is a relatively advanced technique of return fraud that’s more difficult to control and fix. Customers will order something or buy in-store to then send back a different item or an empty box. 

    Obviously, this method only makes sense when the customer knows that the refund comes instantly, with no kind of product verification necessary. Despite the potential for this type of fraud, many online stores feel forced to provide fast refunds. Furthermore, even if they verify the products first, getting into a heated debate with customers requires time and can damage the company’s reputation.

    Returning an item that isn’t eligible for returns

    The last type of return fraud occurs when customers send back items that can’t actually be returned, according to the company’s return policy (or the law). 

    For instance, it’s common to find return policies that don’t admit exchanges or returns for intimates or custom-made products. And, although most customers are aware of these rules, some may be committing refund fraud unintentionally when they send back such an item.

    How to lower the cost of returns fraud

    As challenging as it is to lower the overall cost of returns, it’s crucial to put in place as many preventative measures as possible. Let’s take a look at some key steps you can take to protect your business from return fraud.

    1. Return fraud detection

    One of the measures that can drastically change the number of fraudulent returns you experience as an online store is the implementation of procedures to alert your employees of the possibility of a return scam.

    For instance, you can create a blacklist of customers that have tried or succeeded in committing some kind of return scam and then use this blacklist to set up an automatic trigger every time a name on this list tries to process a return.

    Your customer service team can further investigate these cases to reduce the number of return fraud incidents. And, if a client is proven guilty of return fraud, penalize them to prevent the issue from recurring.

    2. Retail return fraud penalties

    Once you reach a point where you can’t reduce retail return fraud any further, the next step is to discourage more return scams with fixatory measures.

    In this sense, return fraud penalties mean that a customer who tries to carry out a fraudulent transaction will shoulder the costs of the return, so that it has no negative impact on your eCommerce business.

    To avoid damaging good customers, you can implement free returns for everyone but add a clause in your return policy to protect you against fraudulent returns, taking those clients on a case-by-case basis.

    An example of this clause is “Sephora monitors return activity for abuse and reserves the right to limit returns or exchanges at Sephora in all instances” or “All tags must be attached and items need to be unworn and unwashed.”

    sephora return policy

    Combined with attached labels that prevent wardrobing, the number of fraudulent returns will significantly drop.

    pretty little thing puts labels to protect items from wardrobing

    Alternatively, you can offer refunds only after items have been inspected, instead of automatically after the return is requested and the item has just been sent. You can also offer automatic refunds only for in-store credit or in exchange for another product.

    3. Ask for valid reasons for returning goods

    To differentiate bad return practices from legitimate ones, ask for the return reason, as well as order information or the actual invoice. After you validate the purchase and know for a fact that the item was purchased and is within the designated return period, check the return reason to understand why it happened in the first place.

    Was the customer trying to use the product just once and then return it for free afterwards? Did they replace a piece of the item with a cheaper part or nothing at all (bricking)? Were there problems with the sizing or pictures displayed on the product page?

    If the reasons are valid and the items are in mint condition, there’s no reason to think that you’re handling a scam return.

    4. Use eCommerce return software

    The ultimate tip for handling returns in an efficient way is to automate the process with an eCommerce return software like Outvio.

    Outvio enables you to process all of your online returns through an intuitive returns portal in which your customers can handle their own returns without bothering customer support or creating additional tasks. Sign up for this automation platform for eCommerce to make your operations more efficient and grow your business.

    Conclusions

    Returns are often seen as an inconvenience and danger by inexperienced online stores. However, having the possibility to exchange or return products is key to a successful purchasing experience that results in customer satisfaction and repeat sales.

    For this reason, seeing returns as an opportunity to affirm your brand and strengthen customer relationships is the right approach if you want your eCommerce store to thrive. What’s key is that you can differentiate fraudulent returns from legitimate ones and thereby reduce return fraud as much as possible. That way, you can lower their impact and have a better vision of what’s leading to return fraud in the first place.

    Does your return process guarantee that only products eligible for return can be processed? Is your return policy too lax? Are your products adequately labeled to insure protection until the customer can no longer return them? Do you allow fraudsters to shop from your store even if they’re on your blocklist? Do your employees know how to handle tricky situations like angry customers who lost their receipts?

    Outvio can’t help you solve every possible issue, but it can help you optimize your returns process with return rules and a returns portal where customers can process their returns autonomously in 4 easy steps.