CareCredit - Women's Health April 2024

Retailers Battle $101 Billion Returns Fraud Plague

retail return

How common has refund fraud — or returns fraud — become?

So much so that fraudster groups have begun advertising their services on platforms like Reddit, Telegram and TikTok.

That’s according to a Thursday (March 14) report by CNBC on the trend, which involves tricking merchants into refunding a customer for a purchase without the product in question being physically returned.

Experts tell CNBC that the groups behind these frauds are taking advantage of lenient returns policies, which often allow for unlimited free returns and in some cases prefer that customers keep their items.

It’s grown into a huge headache for retailers, the report says, citing a survey by the National Retail Federation and Appriss Retail which found that returns fraud cost stores more than $101 billion last year.

The fraud can take on several forms, like sending back clothing after it’s been worn, a practice known as “wardrobing,” and returning products that had been shoplifted.

Some companies have fought back. Last year, Amazon filed suit against an international group known as REKK, accusing it of stealing millions via fraudulent returns.

The suit alleges that REKK — which Amazon calls an “international fraud organization” — worked with Amazon customers and former employees to carry out the fraud.

“In this scheme, bad actors who want a free product (like an iPad) pay REKK a fee (such as 30% of the product’s cost) to obtain a fraudulent refund,” the suit said.

“REKK uses sophisticated methods to obtain the refund, including socially engineering Amazon customer service, phishing Amazon employees, manipulating Amazon’s systems through unauthorized access, and bribing Amazon insiders to grant refunds.”

And PYMNTS wrote last summer, a low-key return policy can bring with it other costs for merchants.

“Customers now anticipate a frictionless and cost-free returns process, and if that also means ditching the receipt for proof of purchase, retailers are willing to forgo it,” that report said. “By allowing returns without receipts, retailers demonstrate a commitment to convenience. In turn, this enhances customer satisfaction and fosters a positive perception of the retailer.”

Meanwhile, the new PYMNTS Intelligence/Nuvei report, “The Role of Fraud Screening in Minimizing Failed Payments,” finds that only a third of eCommerce merchants have made the connection between failed payments and potential fraud.

“Even more troubling: more than 40% of merchants will simply ask customers to ‘try again’ should a payment fail rather than question if the unsuccessful transaction could actually be attempted fraud,” PYMNTS wrote last week.