By Jeffrey Green (@epaymentsguy)
In the late 1990s, led by the Kmart Cash Card rollout, a trend began in which merchants would provide customers returning merchandise store gift cards instead of cash back. Merchants viewed the cards as a means to counter fraudulent returns.
The retail industry apparently needs a new strategy, as crooks have found new ways to use gift cards fraudulently, and fraudulent returns remain a major problem for merchants.
The National Retail Federation (NRF) in December released the results of an industry survey that found the retail industry in 2013 would lose an estimated $8.76 billion to retail fraud, with $3.39 billion being lost this past holiday season alone. Among the holiday returns, 5.8 percent were fraudulent, up 120 basis points from 4.6 percent in 2012, the research found.
Overall, fraudulent returns in 2013 totaled $9.1 billion, up 3.4 percent from $8.8 billion.
For its research, the NRF polled 62 retail companies in October and November 2013. Executives who replied were from discount stores, department stores, drug stores, supermarkets and specialty stores. Asked to rate their effectiveness in deterring return fraud on a scale of one to five, with one being not effective at all, the retailers ranked their policies at 3.55.
Among the respondents, 94.8 percent said they had experienced returns of stolen merchandise over the previous 12 months (down from 96.5 percent in 2012), while 69 percent reported having experienced the return of merchandise purchased using fraudulent or stolen tender, including gift cards (down from 84.2 percent). Moreover, 49.1 percent cited an increase in fraud encountered through gift cards/merchandise credits compared with 2012, the highest rate increase by far among the various tenders accepted. Only 15.8 percent cited a decrease.
In a news release, Rich Mellor, the federation’s vice president of loss prevention, noted that the efforts to combat fraudulent activity appear to be taking effect, “but criminals are becoming more savvy an technologically advanced in their methods, making it even more difficult for retailers and law enforcement to keep up with the growing problem.”
One method merchants are using to help in the battle is to require customers returning goods, especially without receipts, to present identification. Some 73.7 percent of respondents said they required the customer to show an ID when not presenting a receipt, up from 73.2 percent who said so in 2012. When customers presented a receipt, 12.3 percent of respondents required an ID, up from 7.1 percent a year earlier.
For more insights and commentary from PYMNTS.com Senior Analyst Jeff Green, visit his contributor page here.