Professional Refunders are now exploiting the generous return policies of online merchants like never before and one company is trying to do something about it.
Forter, a company that specializes in online fraud detection, has published a study and found that $24 Billion a year is lost to refunding fraud and abuse.
I recently wrote about the problem of Professional Refunders who fancy themselves fraud hitman for hire. They make upwards of $120,000 a year doing the dirty work for online shoppers and getting refunds for them for a cut of the action.
20% of Merchant Refunds Are Fraud
If Forter is right, than 1 in 5 refunds that merchants process are a result of fraud or exploitation. With merchants processing over $100 billion in refunds annually, the number of losses starts to pile up very quickly.
According to Michael Reitblat, Returns abuse can take many forms. “Wardrobing,” where a consumer uses an item before returning it as new, comprises nearly a third (32 percent) of returns abuse. High return rates can also be a form of abuse — 30 percent of users buy items with the intention of returning some of them in order to qualify for free shipping.
But detecting these refund frauds can be difficult. Most sophisticated abusers and professional refunders will often use many new accounts in succession, use VPN’s to disguise their online identity, and mask their phone numbers by spoofing them during calls to call centers.
Face it, refunding fraud has been industrialized and it’s not going away anytime soon.
Clamping Down on Refund Policies Exacerbates The Problem
If you’re thinking about clamping down on your refund policies to deter fraudsters and exploiters, think again.
With 80% of refunds classified as legitimate, this can drive a wedge between you and a customer that is considering from buying from your website.
According to Forter, 97 percent of consumers say that returns policies impact their likelihood to actually purchase with a retailer. This is especially true for consumers shopping for apparel and accessories; these shoppers frequently use in-store and online returns, and deem these options to be very important (55 percent).
A better approach, the firm says, is to apply a selective approach to stop the bad guys, while maintaining a customer friendly approach for the good guys.
There recommendations are:
- Apply a custom approach to your business based on your customer and product.
- Target abusers selectively by using analytics and technology.
- Find hidden connections that exist between fraudulent refunds that can help you better identify the serial offenders.
- Leverage a real time solution as serial refunders operate their schemes like video games and will quickly change tactics to become successful.
To download a copy of the Forter Study you can request it here.