Rise in shelter-at-home shopping could provide cover for fraudulent returns

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As coronavirus forces most shopping to occur online, merchants will likely see their product return policies tested by both good customers and the unsavory ones who abuse those policies for profit.

It's essentially the same situation that makes early January a major playing field for fraudsters taking advantage of company policies with online post-holiday gift returns.

The pandemic adds another consideration: Should stores be taking back inventory that may have come into contact with infected consumers? Or should they provide better customer service by making their return policies more generous?

"We don't foresee merchants restricting their return policies because of coronavirus, by saying they wouldn't want to take back products that might carry the virus," said Jonathan Hsieh, product marketing manager at New York-based Forter. "It would also add new operational burdens and costs to merchants for their returns processing and handling."

E-commerce fraud prevention provider Forter has already seen merchants consider loosening their return policies or providing more flexible returns to help attract and keep customers in a retail landscape that rapidly forced to adapt to the coronavirus risk.

"Fewer people are able to shop in-store and try on items, so merchants are trying to stand out and acquire new customers," Hsieh said.

But it does open the door a bit for those who make it a normal routine to abuse a company's product returns policy.

Forter feels it is in a position to help merchants alleviate the headache of returns abuse, a practice that Apriss and National Retail Federation research reveals costs merchants $24 billion a year. And that's just the unsavory chunk of product returns in what retailers predict will cost them $550 billion this year.

Forter is launching a Returns Abuse Protection service, which utilizes the same fraud-risk network process of collecting and monitoring data as its protection programs for payments and loyalty programs. Returns Abuse Protection leverages merchant data and fraud data that is used to protect against other types of fraud, but it includes data collected to identify returns abuse and suspicious returns behavior.

This service analyzes shopping data to determine a store's expected return behavior, Hsieh said. Returns abuse often involves multi-channel touchpoints.

Consumers who abuse policies on occasion are not the issue for most merchants, Hsieh said.

"The main problems are with serial abusers who repeatedly take advantage of a merchant's business policies and end up hurting their bottom line," he said. "We've seen an example of returns abuse in which an abuser returned more than $79,000 out of $85,000 in purchases. It turned out, this person was actually a fashion blogger and influencer who was 'wardrobing' and returning the items after they got the picture they wanted."

In addition to wardrobing or "free renting" of apparel, consumers take advantage of return policies by using different cards and addresses to hide the practice, or by returning a different, often less valuable item while collecting a refund for the value of the original item.

Return policy abusers may also issue multiple or false complaints about the quality of an item when seeking a discount or a refund.

"One reason we see this form of abuse occurring is that merchants tend to have a generous returns policy to ensure customer satisfaction and future business," said David Mattei, senior fraud and anti money laundering expert at Aite Group. "Very few merchants have formal policies around when not to accept a return, and most customer service representatives stick to the company's refund policies and do not challenge the customer."

Forter's Returns Abuse Protection provides merchants with approve/decline decisions on every transaction, allowing merchants to block returns abusers from placing more orders. In addition, it will deliver approve/decline decisions at the time a return is initiated online or through a call-center agent.

Suspicious accounts are flagged, giving merchants the ability to enforce policies at the account level, such as making repeat abusers ineligible for free return shipping or only allowing in-store returns.

This is important because a common fraudster trick is to make a purchase online and return it in-store, Mattei said. "In this case, the fraudster may receive a cash card from the merchant, rather than cash. That is just fine with the fraudster because that card can be monetized with ease."

It's a scam that hinges on the merchant return policy, Mattei added. "Not all of them require the refund to be put back on the credit or debit card," he said. "The fraudsters know who those merchants are."

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