How Can Modern Technology Help Reduce Return Fraud?

Christmas is approaching. It is the time of gifting and returning. So, retailers are trying to tackle return fraud at a time where returns are at their highest, increasing the chances of fraudulent returns. In the USA, 25% of annual returns happen between thanksgiving and New Year’s Day.

That’s not to say return fraud is not a problem outside of Christmas season. In 2020, about $428 billion worth of merchandise was returned to retailers; and according to the National Retail Federation, 6% of those returns – roughly $25.3 billion – were fraudulent.

Receipt fraud, shoplisting, wardrobing are some of the fraudulent returns currently taking place. The NRF calculated, nearly three-quarters (72%) of all retailers in the USA are victim to these types of fraud. Similarly, in the UK, in 2019, retailers lost up to £1.5 billion potential sales due to wardrobing alone.

Moreover, the shift to e-commerce due to the pandemic increased returns. Shoppers cited buyer remorse, ordering multiple sizes, wrong items received, and unsatisfactory quality as reasons for returning online purchases. While some of these reasons are genuine, others fall in grey areas and are left to retailers’ discretion, and of course some are intentionally fraudulent.

Thus, retailers must be aware of the types of fraudulent returns and be prepared to tackle the issue head on:

Types of return fraud:

  • Receipt fraud In order to return shoplifted goods without causing suspicion, the fraudster will provide a fabricated, stolen, or an older receipt. There are people and businesses online who sell such digital or physical receipts.
  • Shoplisting The fraudster will find or fabricate a receipt, find the items listed on the receipt in-store, and return them for a refund without ever making a purchase.
  • Price tag switching – The price tag of a more expensive product is removed and replaced by a cheaper price tag. It’s then purchased at a lower price and when returned for the original price, the fraudster pockets the difference.
  • Returning shoplifted products – Shoplifter will steal products and return it at a later date without a receipt.
  • Wardrobing – Shopper will purchase and use the product before returning it back to the retailer. This often happens with expensive outfits.
  • Merchandise exchange – The fraudster will purchase two products at different prices, package the lower cost item in the higher cost item’s packaging, return the lower cost item at the higher price and pocket the different. Or, they could package a non-working or older version of the same product in a new package and return it.

Solutions:

  • Require receipt – Simply requiring a valid receipt will reduce fraudulent returns.
  • Digital receipts – Sales staff can retrieve receipts with personal information such as name and email address and be able to verify purchases. Digital receipts can also identify serial returners or shoppers who have previously attempted return fraudulently.
  • RFID – RFID tags are attached to individual items allowing retailers to determine if it’s a different product being returned, if it was stolen, or sold at a discount. Integrating RFID with POS data can also reveal the movement of the product from production to sale.
  • AI video analytics – Shopper behaviour is analysed by AI and machine learning, empowering retailers to identify behaviours and patterns of return fraudsters and prepare themselves for future fraud.
  • Anti-tamper device – These can help reduce shoplifting but research shows, anti-tamper devices can also deter 45% of “wardrobers”. There are devices which are unlocked by the customer after purchase and cannot be replaced. If placed in a highly visible areas such as the front or neckline of a dress, it will deter shoppers from wearing the item and returning it. Of course, the agreement is that the product cannot be returned once the device has been removed.
  • Biometrics – When fraudulent return has been made, you can add the face, finger print and other biometric data to your database. If they return, you can catch the fraudster before they act. Retailers can share this data amongst each other to help improve security. Even biometric data of suspicious shoppers will help reduce return fraud.
  • Smart shelves – Alerts can be set for when high ticket items are removed from shelves. Sales staff can then choose to monitor the shopper or help them with their purchase.
  • POS product activation – If returned item is not activated, staff can assume it is stolen.

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