The Refund Scam Many Customers are Committing

Jeffrey Wixted

Jul 7, 2021

This Refund Scam Is on The Rise, and Many Customers Are Involved

For as long as companies have had refund policies, bad actors have found ways to take advantage of them. A new refund scam is gaining prevalence, quickly becoming a significant area of loss for large merchants – estimated at $25B in losses in 2020 alone1.

E-commerce was already growing, and the COVID-19 pandemic only accelerated its growth into overdrive2. Companies worldwide had to quickly implement or optimize their digital offerings, many of which will stay in place as part of the “new normal.” More shipments, more couriers and contactless delivery have opened the door for refund scams.

Fraudulent refund requests can be both difficult to detect and substantiate. Here is what you need to know about refund scams and how to stop them:

Different Types of Refund Scams

Refund scams can take many forms, but merchants are typically most familiar with returns abuse. Bad actors defraud companies by returning items that were stolen, tampered with, used or worn, or marked as final sale. When these returns occur in person, they are easier to detect and deny. But as retail has moved primarily online and returns are no longer face-to-face, abuse cannot be identified until after the fact. This can become an operational headache.

But recently, a new scam has emerged: fraudulent refund requests, where customers claim an item was not received and subsequently request a refund. Fraudulent refund scams such as refund abuse, where a fraudster claims a package was not received, are a growing threat to merchants because they are difficult to detect and result in significant monetary losses. And unlike returns abuse, which one-off bad actors typically commit, delivery-not-received fraud is happening on a large scale.

The Faces Behind Refund Abuse

What makes refund abuse so challenging to detect is that both the customer and the transaction are legitimate. There are no stolen or synthetic identities. Instead, the consumer is often fully aware of and involved in the refund scam. The main victim in this crime is the retailer.

While no product or merchant is off-limits, these bad actors typically target large businesses that sell big-ticket items. There are two ways a customer goes about committing this crime:

  1. Self-educate. Consumers are learning about refund fraud and how to pull it off on open discussion sites like Reddit and Quora that are difficult to monitor. They purchase an item, receive it, then call customer service claiming the package never arrived or arrived damaged. The customer service representative is determined to resolve the issue quickly and keep the customer happy. So they issue the refund or send a replacement item.
  • Hire a professional. Professional refunders now offer refund-as-a-service as a refund scam. A consumer hires a professional who advises them on what to buy from where and calls customer service on the consumer’s behalf to secure the refund in exchange for a percentage of the profit. Fraudsters have studied major corporations’ refund policies and know precisely what to say to customer service to get a refund.

Why Customers Commit Fraud

So, what makes customers want to get involved with refund scams? Why are everyday consumers turning into criminals?

For many, it is a Robin Hood mentality that large corporations make plenty of money and can afford small losses. They believe it is a victimless crime, and this mindset persists even though businesses are forced to sustain huge losses. And while retailers prepare for some loss as part of the cost of doing business, the rate at which this scam is increasing exceeds what many companies can handle financially.

Other consumers try refund scams because they do not believe they can be caught. If they do not sign for a package – which is now required less often thanks to contactless delivery – there is no way to prove they received it. Even a picture of a box on a doorstep is not solid evidence considering the increase in packages being stolen by “porch pirates.”

Stopping the Scam

Regardless of the consumer’s justification, the real threat is the ease at which they can learn the tactics themselves or connect with a professional unit that has perfected refund scams. Historically, retailers have relied on customer service training or policies to help identify when a refund request is fraudulent. But policies and subjectivity have proven ineffective and risk accusing genuine customers with valid claims of a crime they did not commit.

Today, the best defense against refund scams is objective data and analytics. Accertify’s machine learning and user behavior analytics can help retailers differentiate between legitimate and fraudulent refund requests in real-time. Through an easy-to-implement API, our dynamic, risk-based approach allows merchants to accurately discern whether a refund claim is legitimate or fraudulent and take the appropriate action:

  • Allow the refund
  • Deny the refund
  • Opt to issue an in-store credit

The answer to fighting refund fraud is to move the process online. Once the process is performed digitally, Accertify’s machine learning, user behavior analytics and device intelligence can help merchants distinguish between legitimate and fraudulent refund requests.

Accertify monitors and analyzes a user’s device, connection, location and behavior to detect inconsistencies between the original purchase and the refund request as well as identify repeat offenders. Real-time risk assessment, analysis, and reporting allow merchants to recognize and stop refund fraud while maintaining a seamless process and positive user experience for genuine customers.

Request a consultation to learn how Refund Abuse Protection from Accertify can protect you from refund scams and 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://www.digitalcommerce360.com/article/us-ecommerce-sales