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BizReport : Ecommerce : August 27, 2021

Expert: Refunds abuse toxic for merchants

Refunds abuse has quickly become the biggest fraud problem for merchants around the globe. Many blame the issue on the sharp uptick in ecommerce since the beginning of the pandemic, but whatever started the problem, it is up to merchants and brands to stem the tide. Here's how.

by Kristina Knight

Kristina: How big an issue is refund abuse?

Jeff Wixted, VP, Marketing & Client Solutions, Accertify: We are hearing from merchants that this is becoming their number one problem. However, there is not a single source that tracks or publishes these metrics, so it is difficult to understand the true size of this problem. More than 1 in 10 packages disappear without explanation; that's more than 1.7 million packages a day, which the National Retail Federation (NRF) estimates cost retailers $25B in 2020 (according to a recent NRF report). However, at Accertify we have seen that while many merchants know refund abuse is a massive problem, they struggle to understand the financial impact. Online shopping volume has increased substantially in the past 18 months, and many merchants want to maintain a competitive edge by offering flexible return and refund policies. But as these policies continue to be exploited, this problem will only continue to grow. It is imperative that companies assess their risk with the help of a trusted partner, and use a targeted solution designed to stop patterns of claims abuse, while minimizing friction to trusted customers.

Kristina: What is driving this increase - is it straight-up fraudsters or are "regular" people now trying to 'get something for nothing'?

Jeff: Both. This is a growing problem, and it is being committed by shoppers perhaps without mal-intent -- they may reason in a single instance it is 'justifiable.' Additionally, there are "professional refunders" who advertise their services to ensure consumers will get their money back or a duplicate item sent, and in turn they take a defined cut. Services like this are not buried on the dark web, but rather in plain sight on forums such as Craigslist and across various social media outlets.

Kristina: The trend, for payments, has been to make online payments as friction-free as possible - is this adding to the problem?

Jeff: This is not the problem - adding steps at the time of payment will not help solve refund fraud. No matter how much friction is added, with refund abuse the customer is placing the order. As a result, the customer will know all the "answers" to any added steps (ex: sending a one-time passcode to a mobile device for verification). This is a bigger issue beyond the time of payment. Actually, it is a friction-free return process that has led to the increase of the size of this problem. Merchants' desire to make the refund process as easy as possible may have contributed to this growing problem.

Kristina: As we get through the back to school season and head toward the holidays, do you foresee refund abuse becoming an even bigger issue?

Jeff: Back-to-school shopping is always a busy time for merchants. With more people shopping online than ever before, we are already seeing higher volumes here. Because this time of year brings higher-value item sales, such as laptops, tablets and more, we expect an increase in refund abuse as well, since these items have high resale value.

Kristina: What can merchants do to protect themselves from refund fraud?

Jeff: Merchants can start protecting themselves from refund fraud by doing the following:
1. Understand the full size of refund fraud at their organization. Start to measure how much this is costing them per month. They should start to look at other types of return fraud as well, including wardrobing and merchandising.
2. Look at transaction data and start to identify unusual patterns - perhaps there is one device making refund requests. It is also important to see if the refund request is coming from the same location as the original transaction / refund request.
3. Train all customer service agents on what questions to ask and what behaviors to be on the lookout for, and what information to track in the system to ensure the fraud teams have insights to the necessary information as well.

Tags: Accertify, ecommerce, ecommerce fraud, ecommerce refund trends, ecommerce tips, ecommerce trends, refunds abuse

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