Are High-Security Checks Worth It?

by Bence Jendruszak
Online stores have to contend with aggressive competitors, grumpy customers, and ecommerce fraudsters. But at least, when it comes to fighting return fraud, there are a lot of defenses retailers can put in place today. Let’s break them down below.
Return fraud is an act of theft that abuses a retailer’s returns policy in one way or another. It is a form of friendly fraud in the sense that a purchase is made by a legitimate shopper albeit in a dishonest matter, where the actual motive is to secure a profit from some sort of theft. Within ecommerce, this most commonly includes stolen credit cards or false claims regarding delivery.
A study by Retail Dive shows that 88% of shoppers want the ability to return a purchase. Moreover, 95% of them claim a smooth return process will make them repeat buyers.
There’s no way around it: Accepting returns is a fundamental 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 so with the growing problem of return fraud.
In this post, we’ll see why this is the dirty secret giant companies want to hide from their sellers, and the kind of tools you’ll need to prevent it.
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:
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 USA’s National Retail Federation cost Amazon $370k after a Spanish buyer stole items and returned boxes filled with dirt, to match the original items’ weight.
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The first point to keep in mind is that returns, including legitimate returns, are on the increase.
According to Deloitte, the online 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 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.
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.
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 keep manually checking your FBA customers’ returns reports to spot suspicious activity yourself. And while patterns that point to return fraud are easy enough to spot, once it’s happened, it’s already too late.
Here are four ways that you can still protect yourself in advance.
In recent years, innovative fraud detection software has 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 just from their email address.
As you can see, all the information returned can 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:
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 instant messenger use (for instance, whether 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.
The rationale behind this check is that a fraudster will probably use throwaway details that have no social media presence, while a regular buyer will give you the address or number they use for their everyday life – for example, on Twitter, Facebook or WhatsApp.
Return fraud is increasing, and it puts retailers in a challenging position. Making your return policy too strict could see you lose business. If it’s 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 the need for 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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Analyze the patterns of previously flagged fraud orders and set up rules to monitor historically suspicious signs – customers connected to previously charged back purchases would be the prime example, as are accounts using throwaway details.
A proper fraud detection solution allows you to flag suspicious orders, while connecting your risk team with your refund processing department and setting up information sharing can help you curb fraudulent returns before they happen.
Useful Links:
Learn more about:
Browser Fingerprinting | Device Fingerprinting | Fraud Detection API | Fraud Detection with Machine Learning & AI
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Bence Jendruszák is the Chief Operating Officer and co-founder of SEON. Thanks to his leadership, the company received the biggest Series A in Hungarian history in 2021. Bence is passionate about cybersecurity and its overlap with business success. You can find him leading webinars with industry leaders on topics such as iGaming fraud, identity proofing or machine learning (when he’s not brewing questionable coffee for his colleagues).
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