Why Refunds Are The New Chargeback

It used to be an uncommon occurrence with a funny name, a misdemeanor of the digital-first era — but porch pirates aren’t so funny anymore.

That little trend is now a serious matter, with one in five Americans losing a package to theft since the pandemic started to the tune of an average of $106 per consumer. With eCommerce expected to continue its inexorable climb through the holiday season, it’s open season on open porches.

Porch pirates are unfortunately a very real part of the holiday shopping season. Kount’s Chief Customer Experience Officer Rich Stuppy told Karen Webster that porch piracy is one of the easier crimes to commit. A really organized pirate will follow Amazon trucks, mark the houses where big packages are getting dropped off and (with the help of an accomplice) make a second pass to run out and snatch a package in about 15 seconds.

Or, he noted, the sophisticated types will get a job on the inside at a warehouse or shipping firm and use the benefit of a scanner to identify and discreetly pinch off the small-sized, high-value items like jewelry and smartphones that start shipping out over the holiday season.

Or, Stuppy said, there are the lazy porch pirates who simply prowl around and steal what looks interesting off the veritable buffet of porches with packages that they encounter in their day-to-day lives. No matter which way it goes, it ends the same way: a customer without their package calling the merchant to find out what went wrong.

“Porch piracy is going to be part of the holiday season for as long as there is holiday shipping,” Stuppy said. “It’s easy, it’s obvious and it takes literally zero brains to pull off in this environment.”

And while on its own it would be a challenge, the trouble really begins when consumers start “crying wolf” about porch piracy to commit refund fraud, which as of 2020 is happening en masse.

The Refund Fraud Boom — And Using Data To Curb It

Retailers will do a lot to keep their customers on board and convert a sale, Stuppy noted, especially this year where 48 percent of businesses say they need to catch up on sales in order to recover from the economic downturn due to the pandemic.

“The customer is always right” isn’t a cliche so much as a way of life for a lot of merchants just hoping to hold on through 2021. Fraudsters are willing to use that mindset to rack up ill-gotten gains, turning things like retailers’ refund policies against them.

“Refund fraud is the new chargeback fraud,” Stuppy told Webster, and battling it back is not a simple task.

For every case of refund fraud, there are also millions of real consumers who have been the victims of porch pirates making legitimate claims about packages never arriving.

It’s not a problem that is going away or a balance that’s going to become easier to achieve. If anything, it will be much harder in 2020 as commerce is rapidly shifting online and fraudsters are shifting along with it. But, as Stuppy noted, it’s possible by properly leveraging data to lock out the fraudster, usher in the customers and learn to tell when the latter is behaving like the former.

When Stuppy says that refund fraud is the new chargeback fraud, he means that it operates on the same logic of taking a consumer-friendly policy or process and twisting it to take advantage of the merchant offering it. Consumers making fraudulent claims about undelivered items is something Kount has heard from merchants for the last four years or so. But in the last 18 to 24 months, the company is seeing it develop as something of a fraud cottage industry, with firms offering to give consumers full refunds for their goods (that they get to keep) if they pay the fraudster 10 percent to 20 percent of the item’s purchase price. And those fraudsters, he noted, are getting increasingly clever in how they trick systems.

“In one version, the fraudster asks for a return label that they attach to an envelope stuffed with nonsense papers and puts it in the mail,” Stuppy said. “The carrier picks it up and it goes back to the return facility, but since it’s not a package, it goes to the mailroom at that facility,” where a facility worker will dispose of it more likely than not, assuming it is junk mail.

The return will go through all the hoops and checkpoints it needs to, so the consumer’s return processes despite the fact that they never sent back their goods. It’s an almost foolproof way to trick the system, Stuppy noted. Consumers are claiming to “return” thousands of goods for which they receive refunds, without ever actually giving up the merchandise.

But what can be nearly impossible to spot in a one-off transaction, Stuppy noted, is viewable over time in the life of a customer. With the proper fraud-first mindset, he said merchants can make better, more nuanced decisions on how to respond to return attempts based on the entire customer history profile. With a large network of identity trust signals, this can be established even beyond one company’s experiences.

Suppose a customer who makes dozens of purchases from a merchant in a year without any incident suddenly reports that they haven’t gotten an expected package. More likely than not, that customer isn’t trying to defraud the company. On the other hand, a consumer who frequently orders high-ticket-price goods and demands a refund when “porch pirates grabbed their package” might need a bit more follow-up in the form of a phone call.

It’s not about an all-or-nothing solution that treats every return attempt the same way. In reality, all returns are not created equal. Some will be attempts at theft. It’s about leveraging data properly so that thieves are stopped and customers who have already been victimized by porch pirates can actually be made whole.