Fraudulent Returns: 7 Ways to Outsmart Scammers

Online merchants are grappling with an alarming rise in fraudulent returns, which has escalated as online shopping has become more prevalent. Recent data from the National Retail Federation predicted an estimated 16.5%, or $24.5 billion, of holiday returns this year are fraudulent. This surge in deceitful practices encompasses a range of schemes, from customers alleging they never received their items to the return of stolen goods or items different from those originally purchased. As this trend threatens to undermine retailers’ profitability and complicate the return process for honest customers, businesses must devise strategies to safeguard their operations. This blog post aims to empower retailers with six strategies to detect and deter scammers, ensuring the integrity of the return process while maintaining a positive shopping experience for genuine customers.

How to Prevent Fraudulent Returns While Preserving the Customer Experience

Clarify Your Return Policy and Make it Easily Accessible

Most shoppers (73%) choose a retailer based on the return experience, and 58% want a smooth, no-questions-asked return experience across channels. Ensure your return policy is clear, concise, and easily accessible to customers. Here are a few ways to do this effectively:

• Define the acceptable time frame for returns, the condition goods need to be in, and any restocking fees that apply. Clear policies can help deter fraudulent activities by setting firm boundaries.
• Make sure the return policy details are listed in multiple places — across your website, on checkout and confirmation pages, and in several email touchpoints (order confirmation, shipment confirmation, delivery confirmation, post-delivery follow-up). 
• Give customers a way to quickly contact your customer service team with questions or concerns — through chat, email, SMS text, or phone. Providing multiple options is best so customers can reach out through their preferred method.

Implement Receipt Management

Enforce a policy that receipts are required for all returns. This ensures that each return can be directly linked to a verified purchase from your store. By matching returns with receipts, you can confirm transactions within your systems, significantly reducing the risk of accepting returns for items not sold by your business. 

Some scammers may try to use fake receipts, so it’s also important to develop methods to validate the authenticity of receipts. Here are some ways fraudsters forge or alter receipts:

• Creating counterfeit receipts (and price arbitrage): With access to sophisticated software and printers, scammers can produce high-quality counterfeit receipts that appear genuine. These fake receipts often replicate the format, logos, and even the thermal printing style of legitimate receipts from major retailers. In some cases, fraudsters create receipts showing a higher purchase price for an item than was actually paid, particularly if an item was on sale. They return the item using the fake receipt to profit from the difference.
• Manipulating digital receipts: Some fraudsters manipulate digital receipts, altering details such as the date of purchase, item descriptions, or prices. They then present these altered digital receipts, either printed out or on a mobile device, as proof of purchase for returns.
• Receipt harvesting: Scammers may collect discarded receipts from parking lots or trash bins near stores. They then use these genuine receipts to return stolen merchandise, knowing the item matches the receipt’s description and price.

To combat these tactics, retailers increasingly turn to digital receipt verification, receipt watermarking, and database cross-referencing to detect and prevent fraudulent returns. Additionally, training staff to recognize signs of receipt tampering and implementing more stringent return policies can help reduce fraudulent returns.

Use Anti-Tampering Devices

More than 56% of shoppers have confessed to wardrobing, a practice where shoppers purchase items that they use temporarily before returning them for a refund. Prevent wardrobing or renting fraud by using anti-tampering tags or devices, like a 360 ID Tag, which make it harder for fraudsters to return used items as new. This also helps preserve the quality of returned merchandise, ensuring that honest customers receive the new products they expect.

Avoid Pre-Packaged Return Labels

While convenient, pre-packaged return labels can simplify the process for fraudsters or encourage customers to make impulsive purchase decisions with the deliberate intent to return items. By providing an easily accessible means to return products, fraudsters might exploit this convenience to return stolen items, counterfeit goods, or engage in “wardrobing.” 

Scammers may also attempt a package redirection scam known as Fake Tracking ID (FTID) where tracking information on the label is manipulated so it maintains scan functionality but ultimately gets lost in transit. Shipping companies will scan the altered label, and the merchant will be notified the returned package is on its way. The merchant never receives the item, but the fraudster is issued a refund. To avoid this, give customers a QR code to present at a shipping drop-off center. Have the center generate the label through the QR code, ensuring customers cannot tamper with the tracking information.

Leverage Policy Abuse Protection Services

NoFraud can aid in automating the enforcement of your return policy, blocking repeat offenders, and getting ahead of rising return fraud trends. A good fraud prevention platform will offer tailored solutions based on your business needs and return policies, making it easier to manage and prevent fraudulent returns or return policy abuse.

Always Inspect Returns Before Issuing a Refund

Make sure refunds are processed only after returned goods are thoroughly inspected, not upon the receipt of the package by the warehouse or the scanning of the return label. In the event of a delay, send an email to keep the customer informed about their status during the refund process. Lastly, consider a ban on repeat offenders.

Consider Restocking Fees

Restocking fees for high-value items or those that are difficult to ship can be an effective deterrent against fraudulent returns, making individuals think twice before engaging in deceitful return practices. For merchants, the fees can help recover some of the costs associated with processing returns, inspecting, and restocking returned items, especially those that require re-packaging. However, use this strategy selectively to avoid negatively impacting genuine customers. To preserve the customer experience, consider applying restocking fees only in the following situations:

• Shoppers with a history of wardrobing 
• Shoppers who have an unusually high frequency of returns or claims
• Or if your store experiences a high volume of both, a restocking fee might make sense 
• Additionally, consider adding a restocking fee for items returned outside the return window

Other workarounds to avoid restocking fees while minimizing fraudulent returns include:

• Offer specific items as final sale — those known for higher rates of return fraud, such as high-value, high-demand merchandise. 
• Place strict limits on return windows for high-demand seasonal products. For example, Halloween costumes can be returned anytime before October 31. 

If you decide to go down the path of restocking fees, it’s important to clearly communicate policies at the point of sale to help manage customer expectations and maintain trust.

Incorporating these strategies into your returns management process can help minimize the risks and costs associated with fraudulent returns. By taking proactive steps, you can safeguard your business’s profitability while ensuring a positive and trustworthy shopping experience for your customers.