General Archives – Page 35 of 266 – Forter

By Doriel Abrahams, Head of U.S. Analytics

The growth of returns abuse has followed the growth of digital commerce like a revenue-draining shadow. While digital commerce has returned to normal growth trends following the breakneck growth speed of the previous two years, Forter’s data shows that returns abuse is holding steady — indicating that whatever else changes, companies are still losing revenue to cheating refund claims.

In recent years, consumers have become far savvier about tricks they can abuse to put money back into their pockets. During economic uncertainty, it’s unsurprising that more good customers are willing to stretch their moral boundaries to protect their wallets while maintaining the lifestyle to which they’ve become accustomed.

The Industrialization of Returns Abuse

As more shoppers continue to move online, so has returns abuse — also called refund abuse or refund claims abuse. But it’s only in the last few years that this form of fraud has become a severe drain on many merchants’ bottom line.

What has changed is that returns abuse has become industrialized. No longer an amateur effort carried out by wallet-conscious consumers, it became a professional business. Professional fraudsters — sometimes called “refundsters” due to their primary focus on returns abuse – offer their services to customers and carry out returns abuse quickly, efficiently, and at scale.

The method is very simple:

• A customer orders and receives an item.
• The fraudster contacts the merchant to claim the item has either not arrived, or has arrived damaged. They know the policies of each merchant, and tailor their story to ensure the refund.
• If the customer is supposed to return the item, there are many ways around this, from sending an envelope with an appropriate sticker that will be scanned and discarded to an empty box to one with the correct weight in rocks or dry ice (which has evaporated by the time the box reaches the retailer, leaving it looking like the merchandise was stolen in transit).
• The customer keeps the item and the refund, and pays the refundster 5-20% of the value of the item. Bargain.

At the same time, traditional forms of returns abuse also continue. These include wardrobing (when the customer buys something to wear it once, returning it afterward), free shipping abuse (when a customer adds something to their order to qualify for free shipping and then returns it), and free gift abuse (when a customer buys something to be eligible for a free gift, and then returns the item but not the gift).

Returns abuse is a severe and layered challenge plaguing many retailers. And now there’s a new twist to watch out for, too.

Watch Out for “Double Dipping”

Forter’s data shows that a growing number of returns abusers — and, in particular, Item Not Received (INR) abusers – are double dipping by submitting a request for a refund through the retailer and issuing a chargeback through the bank at the same time.

If the retailer doesn’t take steps to identify these attempts and prevent them, they stand to lose in 3 ways:

1. They lose the item and can’t sell it to someone else
2. They have to refund the customer
3. They have to cover the chargeback

Although double dipping remains a relatively small slice of all returns abuse (how much varies considerably between merchants and industries), it is growing significantly. Comparing Q3 2021 to Q3 2022, we can see that double-dipping increased by 35% in INR claims.

Given how double dipping amplifies the loss associated with returns abuse for the retailer , it’s worth taking the proper steps to ensure that your business is not negatively impacted. Otherwise, the revenue loss could mount fast, especially at times when returns are higher.

Returns Abuse Slips Through a Window of Opportunity

It sounds like the kind of abuse that shouldn’t be possible. If a business has already issued a refund, how can it get hit by a chargeback?

The fact is, it shouldn’t happen. But unfortunately, payment systems were not initially designed for the complexity and intricacy of today’s digital commerce, and double dipping refund abuse slips through a window of opportunity. There are several ways this can happen:

• Knowledge does not necessarily sync in real-time between your departments: between your organization and your processor or between your processor and the bank. Any delay can create a window of opportunity for double dipping.
• If there are silos between the department that deals with chargebacks and the one that handles refunds, one may not know what the other is doing. That can play out in 2 ways:
  • The chargeback might be issued first, but the support agent handling refunds might not know, giving out the refund anyway.
  • The refund might already have been issued, but the team handling chargebacks might not be actively checking whether refunds have been given.
• Your refunds may not be tied to the same token that identifies the original sale — in which case, how can the issuing bank know that that sale has been refunded?
• Your processor may not check whether a refund has been issued before passing along a chargeback. If this is the case, you can change that, and then the processor can deflect the chargeback, and you can avoid it being added to your chargeback rate. You should also check how often the processor pulls the refund data; if it’s only once a day, then again, there’s that window of opportunity.
• A customer may have been told that they’ll be receiving a refund but not been given it — in which case they’ll feel justified in charging back. You can avoid this by ensuring that your refund process is smooth and proactively warning customers that it may take a few days to receive the refund.

Take Steps to Protect Your Business

Double dipping is an example of why it is increasingly urgent for different, and perhaps previously unrelated, parts of a business (returns, appeasements, fraud, and chargebacks) to coordinate with one another.

It’s vital to have tight information syncing and processes that use that information to treat each interaction with every customer appropriately, based on the entire understanding of what’s known about that customer and their situation.

Payments, transactions, fraud management, abuse protection, and chargebacks are not separate issues, even if separate departments handle them. If we place them in silos, fraud, abuse, and simple misunderstandings will mount up losses for the business due to a lack of communication. Returns abuse has been an example of this for years — and with double dipping, it looks like that trend is doubling down.