The Futurum Group's Statement on Israel

Providing Flexible Product Returns While Limiting Fraud Opportunities

Clear Policies and Controls Can Elevate CX While Protecting Against Returns Abuse

Flexible product returns

Customers have myriad options to purchase products, at both physical stores and online. To entice customers to purchase from their organizations, many stores will provide hassle-free product returns, with relatively lenient criteria for accepting a product after it has been purchased. Whereas some organizations will charge a restocking fee, or require the purchaser to pay shipping fees to return an item, others have embraced the process often used by Amazon sellers:  returns can be made without a restocking fee, and products can be dropped off at a retail store, and shipped back to the seller without requiring an additional fee.

While this approach is customer friendly, it also is a key opportunity for fraudsters to take advantage of these policies. While return fraud has been on the rise for years, the emergence of “buy online, return-in-store” (BORIS) policies makes it even easier for criminals to game the system, costing sellers thousands or even millions of dollars.

Several types of return fraud are being used by criminals. For example, wardrobe fraud is the ordering of clothing and accessories, often high-end, hiding the tags and wearing them, and then returning the items as if they were new and unworn. According to a 2021 study by the National Retail Federation, acts of return fraud like wardrobing amount to $12.6 billion in lost sales for retailers. 

Another type of fraud involves criminals who order merchandise, and then claim it was never delivered, was damaged, or differed from the description, which is known as “friendly” or “chargeback” fraud. Friendly fraud is often considered an honest mistake (such as when an individual does not recognize a charge on their credit card, and asks for it to be removed). These processes can be contrasted with deliberate chargeback fraud, where individuals make “Item Not Received” (INR) or “Did Not Receive” (DNR) refund claims when the item has been received in perfect condition, with no intention of returning the merchandise.

Chargebacks911 research projects that friendly fraud will represents 61% of all chargebacks by 2023, whereas the cost of chargebacks could reach $117.5 billion by 2023, according to Mastercard.

With the financial impact of return fraud continuing to grow, retailers and online merchants may be tempted to curtail the ability of customers to return products. However, there are steps that can be reduce friendly fraud, and make it more difficult for professional fraudsters to succeed.

  • Include common trade names or logos on credit card statements: Customers may assume a legitimate charge is fraudulent if they do not recognize a business or service name. Make it easier for customers to recognize charges by using the name by which most customers know the business.
  • Add tracking and delivery verification to all your orders: To reduce the risk of fraud claims and for proof in case of fraudulent chargebacks.
  • Optimize the return process and create hurdles for fraudsters: Start by reviewing return policies to make sure they are clear and easy to understand. Include a short summary and a link to the full policy on your product pages so good customers know exactly what to expect.
  • Ensure the returns department uses data analytics and fraud prevention tools to identify customers, even if they are using multiple accounts, channels or devices. This allows the creation of a seamless experience across channels for good customers and makes it easier to spot known fraudsters using multiple identities and devices.
  • Implement tracking tools: Make sure it is easy for customers and customer service representatives to track the status of a return, so claims of lost or undelivered packages can be verified.
  • Require a reason for a return: Require that customers provide a reason for their return, to help you spot fraud trends. Multiple instances of a “never arrived” claim can point to potential fraud. Similarly, trends surrounding product quality can also help identify products that should not be sold, or should be marketed in different ways.
  • Create disincentives for fraud that still allow legitimate customers make returns, which can include:
  1. Establish hard time limits on returns, and make them clear in your company’s terms and conditions. These limits should provide ample time for a customer to ensure the product is suitable, but establishing a hard limit will help discourage fraudsters from accumulating merchandise over time, and then sending it back for refunds.
  2. Adjustments to your returns policy based on seasonal activity. While some periods may require a longer return period (such as after the holidays), general purchases throughout the year can be shortened to reduce fraud.
  3. Add restocking fees on high-ticket value items. Restocking fees can discourage people from ‘renting’ high-value items they may want to use once and return, such as high-value apparel, accessories, or electronic equipment.
  4. Use difficult-to-hide tags or remove tags or labels to prevent using a product with the intention of returning it.
  5. Require customers provide proof of purchase for in-store returns to prevent BORIS fraud.

As changes are made, track the results to see how they impact sales conversions, revenue, fraud, and overall customer satisfaction. By tightening policies, while keeping them reasonable for most customers, it is possible to balance customer experience against the costly impact of fraud.

Author Information

Keith has over 25 years of experience in research, marketing, and consulting-based fields.

He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.

In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.

He is a member of the Association of Independent Information Professionals (AIIP).

Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.

SHARE:

Latest Insights:

A New Era of Simplicity, Focus Subscription Services, and Innovation
Camberley Bates and Steven Dickens at The Futurum Group share their insights on the recent VMware Analyst Day and conversations with Hock Tan.
Arcitecta Demonstrated Its Enhanced Livewire Data Movement Capabilities at Supercomputing Asia 2024
Mitch Lewis, Research Analyst at The Futurum Group, shares his insights on Arcitecta’s results in the international Data Mover Challenge at SCA24 and recent enhancements to Mediaflux Livewire.
Cisco and NVIDIA Strengthen Alliance to Accelerate Enterprise Adoption and Management of AI Infrastructure and Hosting on Secure Ethernet Foundation
The Futurum Group’s Ron Westfall examines how the strengthened Cisco NVIDIA alliance can play an integral role in accelerating enterprise transition and re-architecting to AI networking vital to deploying and securing Ethernet-driven AI solutions.

Latest Research:

Our latest report, Market Insight Report: Retail-Focused Enterprise Applications, identifies and analyzes the key trends impacting enterprise-grade retail industry-focused applications, reviews the key functions and features that are being integrated or incorporated within these applications, and identifies influential vendors operating within the market.
Our latest report, Market Insight Report: Group Video Conferencing Endpoints Q3 2023, details the worldwide Group Video Conferencing (GVC) of meeting room endpoint systems.
Our latest report, Market Insight Report: 5G Monetization in 2024, assesses why 5G monetization is gaining momentum as CSPs accelerate deployment of 5G standalone networks and emerging 5G services and use cases are ready to produce significant 5G monetization outcomes.