Of the many different types of fraud that exist, return fraud can be one of the most difficult for merchants to track and prevent. This is largely due to the fact that because there are many different tactics used by criminals to commit return fraud, it can be difficult to know what to look out for.
Here’s a look at some of the most common return fraud tactics and strategies you can use to avoid some of the return fraud pitfalls and protect your business from fraudsters.
Unintentional Return Fraud
Before diving into the tactics used by criminals committing return fraud, it should be noted that not all ineligible returns are malicious in nature. Sometimes, customers will return an item that isn’t eligible for a return completely by accident.
An honest mistake on behalf of a customer can often be attributed to an unclear returns policy. If your return policy isn’t readily available and/or easy for customers to understand, ineligible items will end up being returned entirely by accident.
Having a clear and concise return policy easily accessible for customers is key for preventing return fraud, whether intentionally or unintentionally.
Types of Malicious Return Fraud
There are several different types of return fraud to watch out for — all of which are equally detrimental to a business’s bottom line. Here are some of the most common scenarios:
Price tag switching
Price tag switching is when a fraudster switches the price tag on an expensive item with one from a cheaper item, buys the item at a lower cost, and returns the item after switching the price tags back — pocketing the difference.
How to prevent it: Price tags that aren’t easily removed (no stickers or interchangeable parts) can help with price tag switching. Staff should also make sure that the item on the screen matches what is being purchased when it’s scanned.
Returning shoplifted items
Returning shoplifted items is a fairly self-explanatory tactic. The fraudster steals items in hopes of returning them at a later date for a refund on an item they paid nothing for.
How to prevent it: Simply requiring a valid receipt for any return should be enough to stop these fraudsters in their tracks.
Receipt fraud is similar to returning shoplifted items in the sense that it involves stolen merchandise.
However, to avoid the problem of not having a receipt, the customer attempts to return it with an invalid receipt. This could be fabricated, stolen, or even an older receipt.
How to prevent it: SKU’s on receipts can help with preventing receipt fraud. If the SKU doesn’t match the item, then the return should not be allowed. If SKU’s aren’t available, training employees to look for signs of a fabricated or invalid receipt can help, although it won’t entirely eliminate the problem.
With shoplisting, the fraudster obtains a receipt and uses it as a “shopping list” by obtaining the items listed on a perfectly valid receipt. The fraudster then attempts to return brand new items on the receipt for a refund.
How to prevent it: Implementing a time limit in your return policy will stop fraudsters from using older receipts to return new items.
A common tactic used by customers in the fashion space, wardrobing is when a customer purchases an item with the intention of using it a few times before returning it and passing it off as brand new.
Think of someone purchasing an outfit specifically for an event. They have no use for the outfit beyond that event, so it ends up being returned despite being used. Wardrobing is often considered harmless by those who commit it, but it’s still fraud nonetheless.
How to prevent it: Closely examining items when they’re returned for any signs of use can help. Also, when talking about clothing, the use of tags that would make it difficult to wear the item without first removing the tag can stop fraudsters in their tracks.
Addressing Return Fraud
When it comes to return fraud, taking certain steps and precautions means a significant amount of fraud can be prevented.
Return fraud prevention begins with a clear and easily accessible return policy. By updating and revisiting your return policy, as well as training your employees on what to look for, you can ensure that you’re giving yourself the best chance of preventing these tactics from being used on you.
Forter’s Policy Abuse Protection can also help prevent return fraud by tailoring fraud prevention to your specific business and policies.
Forter is the Trust Platform for digital commerce. We make accurate, instant assessments of trustworthiness across every step of the buying journey. Our ability to isolate fraud and protect consumers is why Nordstrom, Sephora, Instacart, Adobe, Priceline, and other leaders across industries have trusted us to process more than $500 billion in transactions. Click here to learn more.