Return fraud and policy abuse have reached unprecedented levels, with U.S. merchants estimated to lose $101 billion in 2023 due to these problems.
In an interview with PYMNTS, Hannah Bravo, CEO of Loop, offers a detailed analysis of these growing challenges and how companies can effectively address them. Loop Returns, a returns and reverse logistics platform, works with clients such as Vitality, Jaxxon, DailySale, Tortuga and Monos.
A growing problem
The growing problem of return fraud may be due to several factors.
“The tough economy has caused consumers to get creative when it comes to return fraud, and online shopping only makes it easier,” Bravo said. “In addition, the intention to use items only temporarily and dissatisfaction with product quality are other driving factors for the rise in policy abuse.”
This behavior, Bravo said, “may be a response to the overly lax return policies that prevailed during the e-commerce boom and pandemic, when companies prioritized shopper convenience over profitability.”
Despite the financial burden, returns fraud represents a significant opportunity for both brands and solution providers, according to Bravo.
“Return fraud and policy abuse have become difficult behavior for retailers to prevent, placing significant strain on many brands’ margins and resulting in major financial losses,” Bravo said.
For companies like Loop, that means seizing the opportunity to offer comprehensive fraud prevention solutions, Bravo said, emphasizing that Loop’s platform offers built-in tracking tools, advanced analytics and automation to help retailers combat fraud more efficiently.
Combat fraud without scaring away buyers
Retailers face the challenge of implementing effective fraud prevention measures while maintaining a positive customer experience, Bravo said, adding: “The key to solving this problem is implementing a data-driven strategy.”
By using sophisticated fraud detection models, retailers can more accurately identify suspicious activity while providing legitimate customers with a seamless returns process. She stressed the importance of clear communication, saying that brands “need to clearly inform consumers of what they define as ‘fraud’ and then clearly communicate the consequences for acting dishonestly.”
The National Retail Federation (NRF) has reported that retailers are using various strategies to combat return fraud.
“Merchants are testing policy changes and limiting flexibility in online returns. They are closely monitoring consumer reactions to new policy changes, implementing shorter return periods, charging return fees when policies are abused, and even deleting or deactivating user accounts in cases of obvious fraud,” Bravo said. These strategies are aimed at curbing fraudulent behavior while maintaining the need for a positive customer experience.
Implementing stricter return policies can be challenging for retailers because it can encourage customer dissatisfaction and affect loyalty, Bravo noted. To get around this, retailers can implement policies such as requiring items to be returned with tags, prohibiting returns on final sales, and limiting serial returns. Bravo advised retailers to consider these measures to maintain a positive customer experience and protect their bottom line.
Bravo says return fees, shorter return periods and banning repeat offenders play a crucial role in combating fraud. But she warns, “When used so thoughtlessly, these tactics can have a negative impact on customer loyalty.”
The effectiveness of these measures depends on their implementation and alignment with the customer experience.
In addition, traditional fraud detection methods are often ineffective.
“Many merchants today rely on manual detection and prevention measures, which tend to be very labor-intensive, time-consuming and too rigid,” she said, advocating for a more flexible approach that uses advanced analytics and automation to improve the accuracy and efficiency of fraud detection.
An evolving problem
Looking to the future, Bravo predicts that return fraud will continue to evolve as technology advances.
“With online shopping, it’s much easier for fraudsters to make false claims,” she said. To stay ahead, Bravo recommends that companies implement stricter return policies, consider solutions such as paid returns or in-store credits, and keep up-to-date block lists to prevent repeat fraud.
Loop Returns develops technologies to combat return fraud.
“We are developing a fraud detection model that helps merchants assess fraud and abuse risks in real time,” Bravo said, adding that the model, combined with Loop’s comprehensive platform, enables merchants to identify and manage high-risk returns, prevent policy abuse and effectively exclude fraudulent customers.
A common misconception, says Bravo, is the confusion between return fraud and return abuse.
“Return fraud involves intentional, malicious actions, while return abuse is often the result of normal shopping behavior,” she explained. Understanding these differences is critical for retailers to adapt their strategies and address each issue appropriately.
Combating return fraud requires a multi-faceted approach that combines strict policies with advanced technology and clear communication.
“As technology advances, return fraud will also increase,” Bravo explained. “Online shopping is a major contributor to this and makes it much easier for fraudsters to make false claims. For example, they’ll claim that a legitimate purchase never arrived and then demand a refund while keeping the product.”
Companies need to be very aware of the trends, she added, to best prevent return fraud and abuse.
“Enforcing stricter return policies is something retailers need to do – and consider solutions like paid returns and/or in-store credit only,” Bravo said. “Retailers can also blocklist people who have previously abused the system to prevent repeat fraud without compromising the customer experience for honest shoppers.”
