Most brick-and-mortar stores have a return rate of 5% to 10%, while that rate jumps to 15% to 40% for online retailers. Even though a majority of returns are legitimate, retailers shouldn’t underestimate the impact of return fraud.

Many retailers are adopting omnichannel returns to offer a better customer experience. Unfortunately, this approach is also facilitating return fraud.

One woman in Danvers, Mass., took advantage of Marshalls’ omnichannel return policy to steal thousands of dollars over the course of four months.

Erica Cancelliere would order luxury items on the Marshalls website, then return items that looked similar but were much cheaper for in-store refunds. One of the purchases she made totaled $900 and included a pair of boots and a beauty product. Cancelliere got most of her money back by swapping the boots for a $99 item from T.J. Maxx.

Return fraudsters are getting more sophisticated

Experts estimate that return fraud increased by 35% between 2018 and 2019 and cost a total of $309 billion in 2019 alone. Scammers are using more sophisticated schemes to steal money, often including stolen credit cards.

A would-be scammer spent $500 on gift certificates sold by a local business association during the holiday season in Kamloops, Canada. The criminal was more than likely planning to use the gift certificates to make purchases, then return the items to get cash refunds. Thankfully, the business association noticed the fraudulent transaction and published the gift certificates’ serial numbers to protect local businesses.

Retailers are continually taking bigger and better steps to prevent return fraud. However, criminals are finding ways to circumvent stricter return policies. After being banned from returning merchandise at T.J. Maxx, Pittsburgh area teacher Jeannine Vittorino resorted to stealing her colleagues’ driver’s licenses to process fraudulent returns under various identities.

Top three strategies for return fraud detection and prevention

There are steps you can take to minimize losses and prevent criminals from targeting your business.

Update return policies

Updating your retail return policies can make it more difficult for scammers to cash in on fraudulent returns. The key is to find the right balance. Policies should deliver a positive experience for your customers while deterring fraud.

Here are a few policies for fraud prevention without impacting legitimate returns:

  • Always ask for a receipt when processing in-store returns. If the receipt is missing, verify the shopper’s identity.
  • Ask shoppers to include the original packaging when returning a product.
  • A 30-day return window gives shoppers plenty of time to make a legitimate return.
  • Don’t issue cash refunds! Instead, offer to refund the money to the card that was used for the purchase, or offer store credit.
  • Training and refreshers will help employees follow these policies, and you may also want to consider offering training that will help employees recognize common return scams.

Inspect returns

Add a step to your return processing workflow by having employees physically inspect the merchandise. This strategy would have probably been effective in the Marshalls case.

Publish clear guidelines with criteria for accepting returns. For example, a careful inspection sometimes reveals that the product returned doesn’t match the original purchase, or reveals that the product shows signs of wear and tear that aren’t consistent with a recent purchase.

Track patterns

Keep track of how many returns you get and look for unusual surges over short periods of time. Things to watch out for include a store location processing more returns than usual or high-ticket items being systematically returned.

If an employee processes more returns than average, it might be a sign that they’re involved in merchandise theft. Taking inventory can reveal that shoplifting is on the rise, which indicates fraudulent returns might follow. Identifying shoppers who return goods can help you spot customers who make excessive returns.

Addressing return fraud with can help you with return fraud detection and minimize its impact on your business through Fraud Detection Machine Learning:

  • Our intelligent workflow automation solution can help you establish rules for accepting and processing returns. Furthermore, automation will support policy enforcement while helping employees focus on the human aspect of customer interactions.
  • Our identification solution can prevent fraudulent transactions by detecting stolen credit cards used by criminals who use returns to get cash.
  • Our analytics solution delivers real-time data and provides you with actionable risk analytics reports you can use to detect unusual patterns.

Are you ready to take steps toward preventing return fraud? Schedule a demo to get a better idea of how our different solutions reduce risks.