- Returns fraud costs e-commerce merchants USD 41 billion directly, ballooning to USD 2 billion comprehensively, with an additional spending of USD 207 for every USD 100 fraudulent order to mitigate fallout.
- Returns fraud takes various forms, including unclaimed trails, switching products, bricking, friendly fraud, intentional fraud, and stolen credit card activities, presenting unique challenges for e-commerce businesses.
- Identifying returns fraud is difficult, but potential signs include an imbalance in returns, targeting high-value products, anomalies during peak seasons, inventory shrinkage, and profit decline.
- E-commerce firms can combat fraud through robust returns policies, setting and validating SOPs, training resources, and internal audits. Netscribes, with over 5.3 million return incidents processed, offers a proven track record and industry expertise in fraud and risk management.
Product returns are an inherent aspect, integral to the online shopping experience. E-commerce merchants are obligated to facilitate smooth returns, a key component in fostering customer loyalty and brand reputation. While accommodating legitimate returns is part of the game, a lax return policy can attract deceptive customers, leading to the menace of returns and fraud risk management.
The statistics paint a stark picture. A direct loss of USD 41 billion due to fraud amplifies to a staggering USD 2 billion when considering the comprehensive impact. It’s not just about the money lost; for every USD 100 fraudulent order, e-commerce platforms find themselves spending an additional USD 207 to mitigate the fallout according to the State of Fraud 2023 report.
Understanding the pressures e-commerce players face, in this piece, we delve into the nuances of e-commerce returns fraud, exploring its various forms, methods of detection, and practical strategies to shield your business.
Understanding e-commerce returns fraud
Returns fraud occurs when customers exploit the return process for financial gain, causing a depletion of inventory and profits for businesses. Striking the right balance between accommodating honest returns and preventing fraudulent practices is crucial.
Types of e-commerce fraud
Fraudulent activities in e-commerce are vast and diverse, each presenting a unique challenge. From customers switching used or damaged products and claiming refunds to sophisticated techniques like the Partially Empty Box (PEB) and Lost in Transit (LIT) methods, the spectrum is wide. Supply chain issues, partial shipments, and more further contribute to the complexity. Here’s a look at some of the most common ones:
- Unclaimed trails: Customers purchase a product with the intention of using it temporarily, seeking a full refund upon return. This practice extends beyond apparel to include everything from electronics to groceries.
- Switching products: Customers order a new product to replace a damaged or old one they own, leaving the merchant with a lost sale and non-sellable inventory.
- Bricking: This involves customers acquiring a fully functional electronic item, and disassembling it to remove all essential components, rendering it inoperable. Next, the product is returned to make a profit.
- Friendly fraud: Customers claim non-receipt or denial of placing an order after receiving the product, leading to unjustified refund requests.
- Intentional fraud: This involves customers creating multiple accounts, buying various products, and returning empty packages with the intention to resell for financial gain.
- Stolen credit card: Fraudsters acquire legitimate customers’ credit card details, make purchases, return items, and process refunds on a different stolen credit card.
Ways to identify e-commerce fraud
Identifying returns fraud can be challenging. Here are a few key ways to notice such instances:
- An imbalance, with more returns than exchanges, signals potential abuse of the return policy.
- Returns fraud often targets expensive products, such as apparel, electronics, and footwear, where financial gains for fraudsters are higher.
- Anomalies during peak seasons or events can indicate a surge in returns fraud attempts.
- Secondary indicators like inventory shrinkage and profit decline from returns may hint at returns fraud trends.
Fraud risk management: effective
For e-commerce firms to truly raise the bar in ensuring stringent adherence to fraud and returns policies, they should implement the following:
- Robust returns policy: Fraudulent individuals often take advantage of any vulnerabilities present in an organization’s returns policy and quality check procedures. It is advisable to establish precise guidelines for inspecting the quality of returned products, especially when dealing with high-value items by setting stringent Standard Operating Procedures(SOPs). To minimize vulnerability, additional criteria such as requiring the original receipt or purchase invoice, intact price tags, and the preservation of the original packaging can be incorporated into the process.
- Setting and validating SOPs: Establishing and validating Standard Operating Procedures (SOPs) between staff, sellers, and customers is crucial. Also, the e-commerce firm must make sure that the SOPs align with the specificities of return reasons, categories, and priorities. Validation includes running diverse use cases.
- Training resources: Your fraud identification and management success will be as good as your trained resources. Such documented policies empower them to identify frauds from multiple angles, reducing potential loopholes, and thus minimizing chances of lost revenue. This can be done by scrutinizing customer and seller information records – be it profile data, purchase history, sales volume, return rates, and more.
- Internal audits: Implementing a dynamic workflow management system, coupled with real-time internal audits, ensures adherence to standard operating procedures within the firm and identifies areas for improvement.
While navigating the digital commerce landscape, prioritizing fraud risk management is not just a strategy; it’s a necessity for long-term success. Successful players having dealt with such challenging scenarios illustrate the tangible impact of proactive measures on protecting revenues and online brand reputation. As digital commerce evolves, embracing these strategies ensures resilience and sustainability in an unpredictable business environment.
Overall, merchants’ consistent dedication to reducing fraud and chargebacks, coupled with substantial investments in robust fraud management practices, is yielding measurable benefits. Studies suggest that savvy players are actively addressing challenges like friendly fraud, collaborating with payment partners to swiftly implement new anti-fraud measures, and expanding their arsenal of anti-fraud tools and technologies.
How Netscribes can help
For e-commerce businesses seeking a robust solution to navigate the challenges of fraud and product returns, Netscribes stands out as a reliable partner. With a proven track record, industry expertise, and a commitment to technological innovation, we empower businesses to protect their revenue, streamline operations, and drive fraud risk management more seamlessly. To explore how we can benefit your business, connect with us to gain immediate and actionable insights based on your unique data and challenges.
Netscribes’ success is evident in the numbers. With over 5.3 million return incidents processed, a return acceptance rate of 12.5%, and protected revenue exceeding INR 3000 crores, the company has established itself as a leader in fraud risk management. Backed by a team of over 200 members specializing in various product categories, Netscribes ensures 95%+ accuracy and consistent productivity.
To know how we can help protect your revenues, and online reputation and boost consumer trust in your brand through effective fraud and risk management, contact us.