Best Practices in Stopping Refund Abuse

Stuart Mann

Jul 7, 2021

How to Protect Your Company from Refund Abuse

Refund abuse is quickly becoming a major area of loss for large retailers1. Refund abuse fraud differs from returns abuse because the bad actor requests a refund or a replacement by claiming they never received the delivery.

The biggest threat with this type of fraud is the difficulty in detecting it. Companies may see an increase in claims of lost or stolen packages and suspect something is wrong, but there is little they can do. Refund abuse is difficult to prove or prevent because both the customer and transaction appear legitimate. Therefore, fighting refund abuse2 requires sophisticated tactics to avoid upsetting loyal customers who have legitimate claims.

Even if you have not seen an increase in refunds issued due to “items not received” claims, refund abuse should be on your radar. In this article, we share what you can do to stop refund fraud before it happens.

Know Your Foe

Refund abusers are ultimately consumers turned into bad actors. The only question is whether they are acting alone or working with a professional. Either way, the result is fraud.

When working alone, consumers often learn about different types of refund abuse on open discussion sites like Reddit and Quora.  One example is purchasing big-ticket items, claiming to have never received them and then requesting a refund.

But this problem is also being committed by professional fraudsters who offer refunds-as-a-service. Consumers connect with these professional refunders every day to help them commit fraud. For a cut of the profits, a seasoned criminal advises a customer on what to buy from where and calls customer service on their behalf to request a refund. These professionals have studied major corporations’ return policies and know exactly what to say to customer service to seem legitimate.

This has brought refund abuse to another level. Instead of a manageable group of disgruntled consumers, refund fraud is escalating into a widespread issue, leaving retailers struggling to detect and prevent it.

Review Your Policies

The first step in preventing refund abuse is ensuring that the policies you have in place for shipping and returns do not leave much room for fraud. Best practices include:

  • Clearly communicate shipping updates including when an item is expected for delivery, when it is out for delivery, and when it has been delivered.
  • Require couriers to take photos of package deliveries.
  • Set time restrictions for refund requests.
  • Require customers to submit a formal refund request.
  • Ask for product-specific information like serial numbers, SKU, etc.

The tricky part about fighting refund abuse is how to do it without aggravating genuine consumers who have legitimate refund requests. Implementing systems or policies that are too strict can result in loyal customers being falsely accused of a crime they did not commit.

Move Online

Removing as much subjectivity as possible from the refund request process will ensure only bad actors are flagged for suspicious behavior. Rather than rely on customer service reps to be the first line of defense against fraud, retailers should create a dedicated page on their website to submit an item-not-received claim. Any calls that come into customer service regarding a delivery not received should be directed online.

Moving the process online allows for better data collection, monitoring, and analysis. Retailers can examine what type of device (mobile vs. desktop) the refund request is coming from as well as the IP address and location. Significant discrepancies between the purchase and refund request can then be investigated further.

Bring in Support

Effectively collecting, analyzing, and comparing data from both purchases and refund requests is often an unmanageable undertaking for retailers, especially large corporations with sales worldwide. But do not worry because this is not a task you must do alone.

Accertify offers an easy-to-implement, multifaceted solution that uses a sophisticated risk engine, device learning, and behavioral biometrics to create a complete picture of each refund request which allows retailers to act before it is too late.

Accertify’s Refund Abuse Protection can analyze a user’s:

  • Device. Our systems look at the device being used and how the user interacts with it to detect inconsistencies between the original purchase and the refund request.
  • Connection. We monitor ISP metadata and IP location to identify connections repeatedly used for item-not-received claims.
  • Location. Our systems compare GPS location and HTML5 device-based location of the refund request to the original purchase and flag areas with a high volume of claims.
  • Behavior. We examine the user’s behavior on the refund request page to see if it mirrors their behavior on the payment page. Our systems can analyze thousands of behavioral nuances to separate fraudulent from valid requests, including computer keystrokes, mouse movements and clicks, and taps and swipes on smartphones.

Legitimate refund requests are cleared during the screening process with no issues. So merchants do not have to worry about upsetting loyal customers. However, suspicious transactions will be flagged for further inspection.

Request a Consultation to learn how Refund Abuse Protection from Accertify can help protect your company from falling victim to problems such as item- or delivery-not-received fraud.

1 https://apprissretail.com/wp-content/uploads/sites/4/2021/01/AR3020-2020-Customer-Returns-in-the-Retail-Industry.pdf

2 https://losspreventionmedia.com/retail-refund-fraud-and-abuse/