Retailers Rethink Policies as Returns Fraud Spikes Everywhere

Returns fraud is a growing global issue, costing retailers billions annually. Recent estimates suggest that fraudulent returns account for up to 13% of total returns in the U.S., significantly impacting profit margins. With the rise of eCommerce, the potential for abuse has expanded, prompting brands to rethink their return policies.

In 2023 alone, returns fraud cost retailers nearly $102 billion, up 20% year over year.

This trend is not limited to the U.S.; as online shopping increases in the U.K., customer fraud — especially related to return policies — has also escalated.

A Rising Threat

The surge in eCommerce in the U.K. has led to a rise in customer fraud, particularly related to return policies. This trend is costing retailers millions each year and poses a significant challenge for businesses. As online shopping grows, so does the opportunity for fraudulent activity, with some consumers taking advantage of return policies in ways that were not intended.

One trend causing concern is the emergence of “refunds as a service,” a scheme where cybercriminals assist individuals in claiming fraudulent refunds for a fee.

Major U.K. retailers, including River Island and Trainline, are responding to this challenge.

In an interview with PYMNTS, River Island Senior Operational Risk Manager Grant Shipway noted the alarming normalization of refund fraud in today’s culture. He said social media is rife with discussions about tricks and strategies to commit fraudulent returns, making it essential for retailers to adopt advanced technology and collaborative efforts to combat this growing issue.

“Organized refund fraud as a service is becoming more common,” Shipway said. “Criminal enterprises are increasingly advertising and promoting these services on social platforms like Telegram, Discord, Facebook, TikTok, and Instagram, tempting more and more consumers to act dishonestly. Cybercriminals are also informing consumers, via social media, about tricks and strategies they can use to become more adept at committing — and getting away with — fraudulent returns.”

River Island uses sophisticated technology solutions, such as fraud prevention platform Ravelin, to tackle customer fraud. Shipway emphasized that while technology can address opportunistic fraudsters, a broader cultural shift is needed.

“It’s becoming more pervasive,” he said. “It’s now cultural, an accepted part of the social narrative. Significant change can only happen when merchants, banks, payment service providers, the BRC, and more broadly, regulatory bodies, government and law enforcement collaborate. We can change the narrative and shift behaviors by raising awareness of the issue and educating people that this is criminal behavior.”

A Focus on Data

Ravelin’s technology, Shipway said, helps contain customer fraud because “it gives us a clear view of each transaction and the customer behind it, so that we can identify and stop the fraudsters while ensuring great value and experience for genuine customers. We’re all agreed customer fraud is a significant challenge but addressing it should not come at the expense of protection, experience, and value for legitimate shoppers.”

Trainline Director of Fraud and Payments Nick Aiken echoed Shipway’s concerns, and said those committing refund abuse are becoming more sophisticated, often sharing their tactics on social media. Trainline’s approach includes educating consumers about the implications of their actions, aiming to rehabilitate those who might not fully understand the consequences of their fraudulent activities.

Aiken said Trainline’s partnership with Ravelin has yielded positive results.

“Since we started working with Ravelin several years ago, our card-not-present-fraud levels have dropped consistently,” Aiken told PYMNTS. “Ravelin has been very good and very balanced in terms of being able to keep losses and blocks low. All that’s left in the bucket of prevention is real fraud. The genuine customer gets through, which is crucial. In a nutshell, Ravelin helps us keep fraud losses low while maximizing customer conversion.”

Trainline has a 29-person Payments and Fraud team split between Edinburgh and London. These teams oversee the development of the company’s fraud initiatives as they look at both current and future threats.

“Some of the team have been trained by cybercrime (dark web) specialists and by the police,” Aiken said. “This training enables the team to quickly identify individuals committing fraud against Trainline by digging deeper than the average fraud person. Since the Revenue Protection part of the team was formed four years ago, the company has seen a 40% reduction in fraudulent activity in higher risk refunds.”

In 2022, online clothing returns reached more than 4.1 billion pounds, with projections indicating a 16.7% increase by 2027. The highest return rates occur after events like Black Friday.

Global retailers face a complex landscape where customer trust is crucial and safeguarding genuine shoppers from the repercussions of others’ dishonest actions is a priority. By leveraging technology and educating consumers, companies are making strides in addressing this issue.