The Dark Side of Returns and Refunds: How Policy Abuse Damages CX and What to Do About It | Operations

Rafael Lourenco, Executive Vice President and Partner at ClearSale, explains why retailers need to keep an eye on return fraud and CX in order to tip the balance of fraud loss and customer experience in their favor while by keeping the right customers satisfied.

A flexible return policy is the key to successful e-commerce, but it can also open the door to fraud. Returns fraud was on the rise even before the pandemic resulted in more online shopping, more remorse among buyers and more friendly fraud. Now, there are also professional return scammers in the mix.

To balance customer needs with the need to prevent fraudulent returns, it is important for merchants to understand the magnitude of the problem they are currently facing. Twenty percent of e-commerce refunds are frauds, costing merchants $ 24 billion annually. On the flip side, over 80% of consumers check retailers’ return policies before purchasing, according to Shopify, so overly strict return policies will result in losses as well.

Return and refund fraud is common and growing

There are three general types of return fraud. Wardrobe fraud is the practice of ordering high-end clothing and accessories, hiding the tags without removing them, wearing the items and then returning them. In an August 2020 survey, security label maker Secure Authentication Brands found that 37% of respondents admitted to having “kept” clothing from retailers.

Friendly fraud is committed by people who order an item and then claim that it never arrived, that it arrived damaged, or that it was not as described. They can make “Item Not Received” (INR) or “Not Received” (DNR) refund requests from the merchant or file chargebacks that add to the merchant’s losses.

Forbes reported that a study found a 67% increase in friendly fraud between October 2019 and October 2020. Another study from late 2020 found that more than a third of US and UK buyers admitted to having committed fraud friendly, compared to 8% at the start. from 2020.

There is also a growing industry of professional refund fraudsters that consumers can hire for a percentage of the refund. Loan fraud expert Frank McKenna reports that many of these scammers advertise their services online, share lists of “popular merchants” to target, and help customers plan their purchases to increase their chances of fraud.

This is what traders face when it comes to returns. How to fight back without losing customers?

Optimize your returns process and create obstacles for fraudsters

Start by reviewing your return policy to make sure it’s easy to understand at a glance. Include a brief summary and a link to the full policy on your product pages so the right customers know exactly what to expect.

Add delivery tracking and verification to all your orders, to reduce the risk of fraudulent claims and as proof of fraudulent chargebacks.

Next, make sure you have the data analysis and fraud prevention tools you need to identify your customers, even if they use multiple accounts, channels, or devices. This allows you to create a seamless experience across all channels for the right customers and spot known scammers using multiple identities and devices.

You can also work with a returns management department or your in-house technology teams to create a self-service returns center on your site where customers can find their orders and start the returns process. Make sure it’s easy for customers – and you – to track the status of their return so you don’t end up with complaints that their refund never arrived or that the item they have. returned was lost in the mail.

You may want to require customers to provide a reason for their return, to help you spot fraud trends. For example, if you see a series of “never arrived” claims for the same style of diamond earrings to different customers, you may be dealing with individual frauds or a return-to-hire scammer. You can add fraud deterrents, described below, to these products. Reasons for return can also help you identify products that consistently disappoint your good customers so that you can remove them from your store.

In addition to return reasons, you can also track and analyze returns by channel. This can show you if a channel has a particular issue with return fraud or if there are omnichannel paths that scammers follow, such as online purchase, return to store (BORIS) policies.

If you have a brand watchdog program to look for brand imitators and phishing scams, add checks for scammers who can advertise their skills to target your store. If you aren’t already watching your brand, now is the time to start.

Finally, consider creating fraud disincentives that still allow the right customers to return returns. These may include:
• Set deadlines like 30, 60 or 90 days on returns. A good example is Amazon Prime Wardrobe, which allows buyers to return for free before the end of a seven-day trial period to reduce wardrobe fraud.
• Make seasonal adjustments to your return policy. For example, a clothing retailer might extend repayment terms after the holidays to accommodate gift recipients, and then shorten those times for the rest of the year.
• Added restocking fees on high value items. The classic example here is adding a hefty restocking fee to large TVs before the Super Bowl, to prevent customers from “praising” you for the big game.
• The use of hard-to-hide clothing labels to prevent dressing.
• Require customers to present proof of purchase for in-store returns to avoid BORIS fraud.
• Changing your policy to provide store credit instead of refunds to discourage rental fraud.

As you make changes, be sure to track the results to see their impact on conversions and revenue as well as fraud. By keeping an eye on fraudulent returns and CX, you can tip the balance of fraud losses and customer experience in your favor, while keeping your good customers happy.

Rafael Lourenco is Executive Vice President and Partner of ClearSale

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