Last Updated: February 2024
National Retail Federation reveals that in 2020 alone, customer returns are estimated to be $428 billion which is 10% of total US retail sales. Among them, approximately 5.9% are fraudulent which equates to $25.3 billion. Actually, returns fraud causes the most significant losses for 13% of retailers so it has become a priority for 53.6% of retailers.
If you also want to prevent return and refund fraud, then you need to know the 5 main steps we will discuss in this article. But first, let’s learn about return fraud detection.
How to Detect Return Frauds in Retail?
Since your business is online, you have no choice but to provide returns as it increases trust and confidence in your customers. Having a choice to make returns gives your customers a sense of security and flexibility.
While most buyers return products for legitimate reasons, there are some who perform return fraud.
Basically, return fraud happens when your purchasers deceive you throughout the return process. For example, instead of returning the product they received, the shopper might give you a fake or damaged product they have in their possession.
In some cases, they exchange money while returning ineligible items. This is called refund fraud or refund theft retail.
But how to identify return frauds from legitimate ones? Here are the 3 signs that will help you in return fraud detection.
1. Review The Customer’s History
You need to keep an eye on people who are constantly returning the products. It may be an innocent customer who has seriously received faulty or incorrect products but there is a high probability that it is a scammer.
To find out, go through a buyer’s purchase and return frequency. Ask yourself the following questions.
- Are they repeat shoppers?
- Is there anything suspicious about their purchase?
- If they are serial returners, is the return reason legitimate?
2. Sudden Increase in Returns
Most scammers work together and stay involved in tight communities. Therefore, when they find a weak retailer, they will not miss a chance to do a fraudulent transaction or a return fraud. So, you may see an increase in your returns.
This is a clear indication that your store is under attack.
3. Return Policies Not Being Enforced
There is a chance that your staff is accepting returns without properly following the return policies.
Sometimes it could be because they are not properly trained and are not aware of all the policies. Other times, they might not be good at confrontation when the scammer disputes to not get caught and make the return possible. There is also a chance that your staff is an accomplice.
So, you need to watch over your employees as well.
Now, let’s learn the ways to avoid return fraud.
Also, read – The Top Most Common Reasons for Returns
Avoid Return Fraud Retail With These 5 Steps
- Clearly Define Your Return Policy
- Ask For Proof of Purchase and ID
- Keep Your Records Thorough
- Eliminate Cash And Use Better Tags
- Train Your Employees
1) Clearly Define Your Return Policy
The first step in avoiding return abuse is creating a proper return policy. You need to define it in such a way that it helps in reducing return fraud. Make it clear that you are aware of the issue and ready to take action against it.
Here are some tips for building your return policy.
- Define the eligible conditions for returning items. For example, the tags should be intact and the packaging has to be proper.
- Set time frames and accept the returns only in that window. Depending on the product types, manufacturers, locations, and suppliers, you may vary the return window. Note that most of the retailers offer 14 to 30 days.
- Include comprehensive instructions on how the return process takes place.
- Whether your agent will pick it up or the buyer has to courier it.
- In the case of a courier, then tell what carrier services are available or accepted.
- Also, give clear cost details such as restocking fee and transportation fee, if applicable. If your return delivery is free, notify them under what conditions.
- Inform them if there are any exceptions, for products such as food, body care, or personalized items. For example, for certain orders, you may not offer full reimbursement, but only a fraction of it or compensate it in another form like store credit.
- Note to include exchange or replacement policies as well.
As per a survey, 96% of shoppers said that they would shop with the retailer again if their return experience is easy or very easy.
That is why you need to clearly define your return policy and make it easy for your shoppers to return any item.
2) Ask For Proof of Purchase and ID
You should always ask for a receipt or any other proof of purchase when buyers are returning the items. This allows you to avoid accepting returns for sales you never made.
By asking for the shopper’s identification, you make sure that there is no identity theft and that you are not making any fraudulent exchanges.
- Ask for a photo ID that matches the customer’s name.
- The payment method used while purchasing the product.
- If the payment is done through a credit/ debit card, confirm the last 4 digits.
3) Keep Your Records Thorough
Your systems should hold the purchase history of all buyers. It should be capable to gather and assemble receipts whenever you need them. Moreover, the contact details of your clients should always be up to date.
If you cannot maintain your records authentically, it will be difficult to identify a fake account and scammer.
You need to pay close attention to return metrics and detect any scammers before they proceed to request a refund.
4) Eliminate Cash And Use Better Tags
Refund fraud is always possible when cash is given for returned products. Therefore, to reduce refund theft, you can offer store credits, gift cards, discounts, exchanges with products, and so on.
When it comes to expensive items, scammers usually buy them, use them, and then return them. This is often called wardrobing. To avoid this, you can use anti-tampering devices like 360 ID tags. It prevents shoppers from wearing items when they want to return them.
5) Train Your Employees
Your employees are the ones who process returns. Therefore, you can train them to detect return fraud and check the quality of a product before proceeding with the returns. Also, for a better understanding of the consequences, you may share the refund fraud experiences.
This helps you to stop the return fraud right at the first point of contact. It also benefits in weeding out the damaged or unusable products that by mistake may have been delivered to the customers.
Bonus Tip: Use Saufter, The Best Return Management Software
Returns are an unavoidable part of an eCommerce business. So, you will need software that will make this work easier for you. That is why we are introducing you to Saufter.
Basically, it is an all-around helpdesk software that offers a variety of features ranging from order management to customer support services. And, one of its best features is the automated returns management system.
Let’s learn about Saufter in more detail.
- As per your policies, it allows your customers to return or exchange items automatically.
- Your support team and buyers can download the return label with one click.
- Through Saufter’s AI, understand your customers’ needs.
- By implementing the anti-refund strategies, send discounts and deals to reduce returns.
- The software tracks orders 24/7 and automatically detects any issues or delays so you can proactively resolve the issue.
- It allows you to manage all your orders and returns from other eCommerce platforms such as Shopify, WooCommerce, and Magento.
- Measure key performance metrics and generates real-time reports.
- Automates your repetitive tasks.
- Provides self-help services through a data-driven chatbot and knowledge base.
- Allows you to deliver omnichannel services via live chat, SMS, email, phone, and social media.
- You can even hire professional agents from Saufter marketplace and test and train your support team.
On top of all these, they also offer marketing automations, influencer identification, and many more.
Hope you understand the concept of returns fraud and ways to detect it from this article. Just implement the steps provided above to prevent return fraud in retail.
To make things easier, you can use Saufter. Its automated returns management and order management systems let you handle your eCommerce business effectively. Another advantage is that you can use their customer support services, marketing, self-help, and automation features to scale up your business.