A study by RetailDive shows that 88% of shoppers want the ability to return a purchase. 95% of them claim a smooth return process will make them repeat buyers.
There’s no way around it: accepting returns is a primordial way of engaging with your buyers. It turns shoppers into long-term customers, grows loyalty, and boosts your brand reputation online.
And while a lax return policy works wonders for giant retailers like Amazon, Etsy or Ebay, it’s the smaller e-tailers who have to bear the brunt when things go wrong: especially with the growing problem of return fraud.
In this post, we’ll see why it’s the dirty secret giant companies want to hide from their sellers, and the kind of tools you’ll need to prevent it.
The Many Forms of Return Fraud
Return fraud exists on a wide spectrum, ranging from honest shopper mistakes to malicious operations on a large scale by organized crime rings. Here is what a fraudulent return might look like:
- Wardrobing, or free renting: When shoppers buy items with the intention of using them once and returning them later. Often seen as a victimless crime, and one-fifth of UK shoppers admit to having done it.
- Opportunistic: not all return fraud is preplanned. Some buyers will sometimes select the wrong reason for a return, unaware that it will affect the seller. They may do it after changing their mind, or to protest a seller’s policy. Buyers sometimes request a refund if the delivery is delayed (and then conveniently forget about it).
- Seller sabotage: in the cut-throat FBA world, for instance, unscrupulous sellers have no qualms about buying all the items from a competitor, and sending them back as late as possible to deplete an inventory. Some will even return a counterfeit item in the original packaging, and mark it as such. This could trigger an account suspension, which would end your business.
- Deliberate fraud: this is effectively a return scam, where the buyer will try to get the merchandise for free. They create multiple accounts, purchase items, and return the packages empty before reselling their loot elsewhere.
It’s worth noting that the most sophisticated return scammers can sure make a dent in retailers’ profits. In 2019, for instance, the biggest European scam ever recorded by the National Retail Federation cost Amazon $370K after a Spanish buyer stole items and returned boxes filled with dirt.
Why Return Fraud Happens
The first point to understand is that returns are on the increase. According to Deloitte, the return rate is expected to reach close to 10% by 2022, which places a greater burden on retailers to inspect items and deal with them appropriately. This is true whether inspections are done in-house or by a third party third party logistics company (3PL).
For FBA sellers, the pressure is on Amazon workers to inspect the returns as quickly as possible, which is why it’s so easy for unscrupulous buyers to fool stores into thinking the box has never been opened, for instance.
As a side note, even if Amazon classifies the item as unsellable, you might still have to pay storage fees until the item is sent back or destroyed. It truly seems to be a lose-lose situation for third party retailers.
How to Minimize Return Fraud
Some marketplaces have solutions in place designed to help with your due procedure. On eBay, for instance, you can set up buyer requirements. You can block buyers with unpaid item strikes, in risky locations, or those with negative feedback scores.
With Amazon, there is no such protection. You’ll have to rely on their internal fraud detection methods, which can leave a lot to be desired, or manually checking your FBA customer returns report to spot suspicious activity yourself. And while finding patterns that point to return fraud is easy enough to spot, once it’s happened, it’s already too late.
There is little you can do by then except take it on the chin, and report the buyer to the marketplace, the delivery service, or even the police. It’s also possible to confront the buyer, but with professional fraudsters, it’s pretty much a lost cause.
However, you can still protect yourself in advance by:
- Requiring ID and contact info when accepting returns
- Eliminating cash refunds, and offering store credit or gift receipts instead
- Updating your return policies to limit to more strict guidelines and specific time frames
- Requesting the removal of unsellable returned items so they’re sent back to you for manual inspection.
Finally, you can also spend more time investigating return requests from high-risk customers.
But the key challenge here is to get an idea of who your users are before shipping the item in the first place, something that’s only possible thanks to digital footprint analysis.
Reading Your Buyer’s Digital Footprint
Digital footprint analysis is a term used in fraud prevention. It is an advanced process that was once only manageable (and scalable) for the biggest e-tailers, as industry-grade tools were expensive and complex to integrate.
But in recent years, a number of innovative solutions have made it possible for anyone to use anti-fraud tools, even with very little technical knowledge.
For instance, a quick reverse email lookup check could tell you a lot about a new buyer, based only on their email address.
As you can see, all the info we get help us understand whether we’re dealing with a legitimate user or a suspicious account. The risk score at the top lets us know how risky the account seems based on:
- Email domain: return fraudsters often have to create multiple email accounts. To scale their operations, they go through free domain addresses. Address creation date, and whois database checks also help with the checks.
- Social media lookup: similarly, fraudsters won’t have time to connect to social networks.
- Data breaches: an email address that appears on a data breach is actually safer. This is because it proves that it’s a mature address, and one that’s been used before.
If you gather your buyers’ phone numbers during checkout, you can perform a similar check:
Here, you’ll be looking at country of origin, carrier and type, along with messenger use (for instance if the phone number is connected to Whatsapp, Telegram or Viber).
Combining all these data points is a process known as data enrichment. And the good news is that it works in real-time, it’s affordable, and you can even do it directly from a Chrome extension.
Key Takeaways: Reducing Return Fraud
Return fraud is increasing, and it puts retailers in a challenging position. Making their return policies too strict could see them lose business. If they’re too lax, unscrupulous buyers and competitors will abuse it.
But thanks to modern tools for preventing fraud, you can easily flag suspicious shoppers, without technical skills or a dedicated loss-prevention budget.
Return fraudsters who operate at scale have to create multiple accounts fast with a list of credit cards. A good data enrichment tool for digital footprint analysis can spot the riskiest buyers before they damage your business with excessive returns.
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Bence is the co-founder and COO of SEON whose vision is to create a safer online environment for merchants in high risk verticals.