Returns and Refunding Fraud Costing Merchants Millions

Returns and Refunding Fraud Costing Merchants Millions

August 27, 2020

CNP inFocus LogoMerchants are losing massive amounts of revenue annually because of returns abuse and fraud. New research from Forter claims 54 percent of merchants lost revenues of $5 million or more annually because consumers or professional fraudsters are taking advantage of vulnerabilities in their return policies for online purchases. 

The survey also notes about 20 percent of returns are categorized as fraudulent or abusive. It is a growing problem as returns abuse rose by 33 percent from 2018 to 2019. The research also revealed that 30 percent of shoppers will purchase an item with the intent of returning it simply to qualify for free shipping.

Unfortunately, the challenge is a tough one to tackle as customers today want easy, seamless returns experiences. 

Among the findings:

  • 80 percent of shoppers are deterred by inconvenient policies and expect free returns;
  • 23 percent of shoppers will abandon their carts if returns options are poor;
  • 56 percent of consumers report Buy Online Return in Store (BORIS) options to be very important.

“While flexible returns are becoming a bigger requirement for consumers, these policies are also becoming a bigger target for abuse,” said Forter in a summary of the findings. 

One emerging way fraudsters are leveraging return policies merchants have set up to be more customer friendly is “refunding fraud.” Professional “refunders” who understand the returns process are advertising a new service: they are initiating refunds for e-commerce purchases customers made where they do not need to return the product. The fraudster, with all of the purchase and payment details, initiates a refund claiming they never got the product or it was damaged, the consumer keeps the product they received (without the risk and hassle of trying to do it themselves), the merchant refunds the purchase to the consumers’ card and the consumer pays the fraudster a fee (anywhere from 5 to 30 percent of the price).

Card Not Present has put refunding fraud inFocus this week. Click here, where you can read more about it, share information on the topic directly with other merchants, or attend a webinar, to learn all about this new threat.

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Joan Goodchild

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