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What is return fraud and how to prevent it

Return fraud occurs when bad actors take advantage of return policies. This is the use of the returns process to defraud a business, which is a problem in the retail industry.

If you think fraudulent returns are not a problem, think again. The U.S. hotel and retail industry reported that $33.9 billion worth of merchandise was affected in 2019.

What is return fraud?

So what exactly is return fraud? Attempts to return stolen merchandise for a cash refund and use of counterfeit and/or stolen receipts are eligible. Other methods are called price arbitrage and box fraud. The employees also ran the scam, with workers returning stolen merchandise for a full refund.

Long story short. This is a criminal act of defrauding retail stores through the returns process. Here are some more numbers on the subject. The National Retail Federation reported a surge in returns due to the pandemic. This means returns fraud will also increase.

  • read more:How to Fight Ecommerce Fraud in Your Small Business

Why does return fraud occur?

Those who commit returns fraud are abusing company policies. And the rewards themselves are increasing. Deloitte expects the ratio to reach 10% this year. The pressure to process returns quickly, like Amazon employees, is mounting.

Types of Return Fraud Tactics

Small businesses looking to return returns to minimize returns fraud need to be able to identify it. Here is a list of 7 types to be aware of when handling customer returns.

Price conversion

This is Regarding the return of items purchased at a lower price. Dishonest customers switch labels and they get paid for a higher price.

Receipt Fraud

This type of A type of fraud can use someone else’s receipt or a stolen receipt to get a cash refund. Bad actors even falsify valid receipts through this type of chargeback fraud.

Unboxing fraud

Bad A shopper buys an item. They then return the opened item to purchase at a lower cost, according to the store’s open box policy.

Return Stolen Items

In this case, fraudsters return items for which they did not pay. Finding a receipt and shoplifting the same item is one way of committing a crime.

Employee Fraud

Employee Help Someone returns the stolen goods in full at the retail price and pays sales tax.

Switch Fraud

Bad actors start by purchasing a valid item. They return damaged or damaged defective identical items. This is tied to so-called cross-retailer returns. Swap an item for a higher priced item at another store.

Wardrobe or free rental

Clothing, computers, electronics and tools are purchased and returned after use. The intent is to make this different from a legal return. Fraudsters only want to use the item for a short period of time.

Price Arbitrage

When Scam This can happen when people buy items at different prices. They return the cheap stuff and take the difference.

  • read more:Product return scams cost retailers $43 billion in 2020

    How to identify when a fraudulent return occurs

    Being able to spot fraudulent returns as they happen is critical. Here’s what to look out for when fighting returns fraud. These red flags will help you stop losing money in your retail business. And spot bad actors when they return stolen merchandise.

    1. The number of returns has skyrocketed.

    Scammers work in droves. When they find a weak retailer, they focus on it. If your returns suddenly increase, your business may be targeted. One way to find price tag conversion criminals is to know the normal number of returns. Your small business can track returns with the right software.

    2. Watch out for consecutive returns.

    You can also fight return fraud by watching other patterns. A real customer who keeps returning returns may be legitimate. Or they might make some honest mistakes. Most likely they are processing fraudulent returns. Note that refunds are processed to the same person at any retail store. See the pattern of returned product types.

    3. Beware of inconsistent details

    Friendly fraud attempts to use false information. For example, e-commerce merchants should look for different names using the same email address for multiple purchases.

    4. Store Location Matters

    Franchise store owners need to be aware of returns abuse patterns. A peak at one store could mean receipt conversion scammers have targeted that spot.

    5. Pay close attention to the holidays reports a surge in return requests following a surge in customer shopping lists. They say 25% of returns happen between Thanksgiving and New Years Day. Real customers need to be considered here to enhance your customer experience. But there are also scammers trying to steal money.

    Tips for preventing business returns fraud

    Good fraud prevention is about being proactive. Here are some ideas for tweaking how you return your returns.

    6. Offering store credits instead of cash refunds

    Cash refunds are attractive to bad actors. Instead, offer store credits, exchanges from store shelves, and gift cards.

    7. Clear return policy

    Reasonably limit the time for customer returns. Seasonal return policies can crack down on people who like to steal receipts.

    8. Consider restocking fees

    If you implement these fees on items like clothing and electronics, you’re in the fraudster’s scheme have trouble with. These fees apply best to items purchased for high-end events and/or seasonal events.

    9. Tracking Shipments

    This makes it difficult for people to report that they didn’t receive the shipment at all.

    10. Proof of purchase required

    Asking for a receipt is your best line of defense against returns fraud. Watch out for invalid receipt red flags, such as faded signs.

    What happens if someone commits returns fraud?

    Return fraud has different consequences. Empty box scams may just be misdemeanors. But you can still spend a year in jail and pay up to $1,000 in fines. More serious crimes can cost you $10,000 and three years in prison.

    Is refund scam illegal?

    Yes. Under the law, this is like petty theft or shoplifting. But under California law, intent to steal must be proven.

Image: Envato Elements

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