This year has witnessed a surge in e-commerce transactions with a 110% online order increase in the United States only. As the quarantine restrictions remain in force, and the holiday season approaches, the popularity of retail stores keeps growing. Today, consumers are more likely to avoid large shopping malls and choose safe online purchases instead.

This nudges brands into sorting out their priorities and shifting the focus to e-commerce opportunities. Yet preparing for the hot season, apart from going online, retail owners should also brace themselves for retail return fraud risk. According to the National Retail Federation, around 11% of purchases made during the holiday season are returned. Out of these returns, 8% are expected to be fraudulent.

Retail return fraud takes a massive toll on business owners and results in over $27 billion worth of losses annually.

Fortunately, some fraud prevention techniques can fight return abuse. They considerably reduce retail return fraud incidences and benefit your business profitability.

To find out more about what is retail return fraud and how to manage fraudulent returns, read about:

• What is retail return fraud?
• Common types of return abuse activities in e-commerce
• Five ways to minimize retail return fraud: shipping address validation and other approaches
• Benefits of Inkit’s Reach Enablement Platform for fighting return abuse

What Is Retail Return Fraud?

Retail return fraud is a fraudulent activity when a customer uses a stolen credit card to purchase something on a website. After that, the fraudster contacts the online store and requests to reimburse the payment because of an accidental overpayment. They usually state that the credit card used for payment is closed and ask the online store to send money to another card. As a result, the business returns the full amount of the purchase to the fraudster, whereas the original credit card charge is never returned.

Common Types of Return Abuse Activities in E-commerce

When it comes to the return of stolen merchandise and other return abuse activities, there are many ways of cheating. You’d better know all of them to stay prepared for anything. This will allow you to implement a reliable system of checks and detect return abuses early on. So here are the main types of return abuse activities in e-commerce:

• Counterfeit credit cards. A fraudster gets a fake credit card with real account information stolen from other people to make an e-commerce purchase. The victims usually don’t even know that their credit cards are compromised.
• Returning merchandise that was used. Such behavior is also known as wardrobing. A person buys a product, uses it on a special occasion (e.g., birthday party, graduation), and returns to the store with all tags. If the store staff isn’t attentive enough to notice the wear and tear, they may accept the returned items never to sell it again.
• Counterfeit receipts. Fraudsters use fake receipts to request a refund from an online store for the items they haven’t purchased.
• Exchanged merchandise. People buy new products, replace them with used or broken items, and then return the merchandise. They accuse the store of delivering the fractured item and request a full refund.

• Return with a stolen credit card. This is the classics of retail return fraud. Fraudsters get hold of customers’ credit cards to use this information for return abuse. They pay for the order with the stolen credit card and ask the seller to send a refund to another credit card.
• Friendly fraud. A person purchases something from an online store and asks the payment processor to accept a chargeback since the transaction was invalid. Although the customer may be entitled to a refund, this approach is often used to get free items.
• Account takeover fraud. This type of return abuse may occur when a fraudster gains access to loyal customers’ accounts to make purchases, withdraw funds, use store credits, etc. Account takeover is a form of identity theft that will damage your reputation in addition to causing financial loss. Consumers don’t want to buy from a store without a proper level of security and fraud prevention.

Although these are the most common types of retail return abuse, swindlers regularly develop new ways to commit retail return fraud. Hence, the best approach to protect retail stores from fake returns is to rethink your order policy and run shipping address validation—more about ways to minimize retail return fraud below.

Five Ways to Minimize Retail Return Fraud: Shipping Address Validation and Other Approaches

Anyone who runs an online business needs to have loss prevention at the core of their everyday processes. Shipping address validation, store credit instead of refunds, limited return time, and other smart approaches will cut the number of retail returns. Now, let’s discuss them in more detail.

#1. Limit flexible returns to 15 or 30 days

The more time you give, the more return abuse opportunities fraudsters have. This also increases the returns of used merchandise. That’s why it’s essential to find the balance between return abuse prevention and the return period that allows you to stay regulatory compliant. We suggest choosing between 15 or 30 days.

#2. Follow up returns with a call

If you suspect a return abuse, contact the related customer directly to ask if everything is okay. It’s an excellent opportunity to learn more about customer experience and check whether the person who filed the return request is the same individual who owns an account in your online store.

#3. Limit cash refunds offering store credits or equal exchanges

Fraudsters would be happy if you’d just given them cash without any alternative. Hence, your task is to make cash refunds the last resort after the buyer has confirmed their identity and refused all other options. First, try to offer the person who requests a refund a store credit with some bonuses. Loyal customers may be perfectly happy to get some virtual money and a discount they can use later. Equal exchange is another possible option. Allow customers to exchange the product they want to return for another item. This may help you keep both the buyer and their money.

#4. Run AVS checks

Use AVS software to match the billing address stored in the credit card issuer’s database with the information provided by the customer. Matches or mismatches will help you automatically detect the riskiness of transactions and take the necessary actions. Although this doesn’t offer 100% prevention of retail return fraud, the number of fraudulent transactions will drop.

#5. Implement shipping address validation

Leverage shipping address validation to automatically check all addresses and eliminate inaccurate or invalid records. Physical addresses allow you to deliver purchased items and ensure the buyer and the recipient is the same person. When shipping address validation shows that an address is valid and mailable, the order is secure, and the risk of return abuse is low.

Benefits of Inkit’s Reach Enablement Platform for Fighting Return Abuse

Inkit is a Reach Enablement Platform with built-in shipping address validation and autocomplete. You can integrate it with your online store to automatically run address verification of domestic or international addresses or make address corrections.

It supports hundreds of integrations enabling you to deliver order-related communications through multiple channels based on triggers. Thanks to this, you can inform customers about everything that happens with their accounts for effective return abuse prevention.

Looking for help with fighting high returns rates? Contact our sales team to get Inkit’s demo for shipping address verification and more.