Refund and Returns Fraud in 2022

One has to admire the innovation and opportunity grabbing nature of fraudsters, even if we don’t approve of the way they apply those characteristics. Criminals are always ready and willing to jump on any trend and find new ways of leveraging its weaknesses to make a quick buck at the expense of individuals or businesses.

The incredible jump in ecommerce shopping engagement brought about largely by the global COVID-19 crisis has resulting in a sympathetic spike in online fraud, with wily criminals discovering weaknesses and loopholes in process and infrastructure and exploiting them for personal profit.

One sector of online fraud which is on the rise is returns and refund fraud. With National Retail Federation data from 2020 reporting that, of the $102 billion in ecommerce returns completed during the year – which was double the amount returned in 2019 - $7.7 billion was deemed to be fraudulent.

Refund Fraud

The term refund fraud is a broad subsection of online criminal activity and covers a number of techniques ranging from the incredibly simple to the highly sophisticated.

One example of a low-tech technique involves customers fraudulently claiming they haven’t received a product, or that the product arrived damaged, and requesting a refund or replacement, only to then sell on the product for profit. Because of the spiraling costs of reverse logistics, many retailer don’t ask customers to send back a damaged product and simply take them at their word and send out a replacement.

A more sophisticated fraud requires the criminal to steal or clone the retailer’s POS system, and hacking into their merchant account – usually through social engineering techniques. Once they have the POS system and access to the account, the fraudster can use it to complete fraudulent purchase returns to a prepaid card that can then be cashed out at an ATM. This method has become even more popular in a world where POS systems are often run on tablets and operated from the cloud, meaning criminals only need to acquire a set of login credentials instead of a physical terminal.

It's clear that fraudsters looking to commit these kinds of crimes have access to a range of methods with which to ply their nefarious trade and retailers need to be hip to these techniques and have robust policies and processes in place to combat them.

Staff Training and Cybersecurity

Seeing as most POS fraud involves some level of phishing or other social engineering techniques to access login credentials, one of the best defenses your brand can have is well trained staff and a solid and well communicated cybersecurity policy.

Making sure your employees are up to speed on all the latest techniques deployed by online fraudsters will make sure your POS security credentials stay only in the hands of those who need them. You should also resist the urge to have the logins saved on the tablet or other device you use as a POS terminal. It may save you a few seconds when opening up the store in the morning, but it means a criminal only has to steal the device and get past the lock screen to access everything they need.

Also avoid using a pattern to unlock the screen on your phone. It is incredibly simple to reveal the pattern traced by repeated finger contact on a screen and it’s far more secure to use a passcode or, even better, biometrics such as fingerprints or a retinal scan.

Returns Policy and Courier Selection

Your written returns policy should also be designed in a way which dissuades returns fraud.

Where possible, require damaged items to be returned before sending out a replacement. If this is not cost effective, you can request images of the damage, complete with a date and time stamp. Ensuring all parcels sent out are tracked by the postal service or courier is a practical method of ensuring they are delivered where and when they should be.

Many courier companies these days require their drivers to photograph the parcel at the address as evidence that it was really delivered. Make sure the courier your retail brand offers this extra level of peace of mind security.

Final Thoughts

As long as retailers need to balance customer service with security, returns fraud will continue to be an issue and it’s impossible to do away with it entirely. However, by making sure staff are well trained with regularly updated material and your returns policy is written in such a way as to discourage fraud, you will reduce the problem to its lowest possible level.

Returns and refund fraud are sure to be part of the conversation at Consumer Returns 2022, taking place in October at the Hyatt Regency Austin, TX.

Download the agenda today for more information and insights.