Why Refunds Abuse is the Newest Fraud Threat

Katie Friedman

Jul 7, 2021

Fraudulent refund request? How Refunds Abuse is Going Undetected

In a time when online shopping is at an all-time high1 and customer service can give a competitive edge, a new type of fraud is gaining notoriety. Refunds abuse is a rapidly growing type of fraud that occurs when a customer places an order, receives the goods and then fraudulently claims to not have received the delivery.

The COVID-19 pandemic caused an influx of consumers shopping online and merchants scrambled to deliver. Fraudulent refund requests take advantage of the new norms and businesses wanting to maintain customer satisfaction.

For many large merchants, fraudulent refund requests are now a major area of loss2. But it is difficult to detect and can cause confusion. In this article, we explore this trending type of fraud and why it is so hard to detect.

What is refunds abuse?

Simply put, refunds abuse is when bad actors take advantage of a company’s return policy. It can take many forms, but the most known method is when a customer receives the item they ordered and fraudulently claims to never have received the shipment.

This is also known as delivery or item-not-received fraud. Criminals – or professional refunders – claim they never received the shipment when in fact, they did. They contact customer service, say they never got their package and request a refund or a replacement. The customer service representative, who is trained to focus on customer satisfaction and retention, issues the refund or ships out a new item. The fraudster is left with the item they ordered and all their money returned to them or duplicate item(s). They can then take the replacement item(s) and resell them. 

Who is committing refunds abuse?

There are two main types of criminals involved in refund fraud:

  1. Individuals – Legitimate customers develop a Robin Hood mentality that they are not doing anything wrong because large organizations can afford the loss. These individuals learn the fraud tactics online through sites like Reddit.
  2. Organized retail crime (ORC) – Organized groups of fraud professionals are now offering this type of fraud-as-a-service. Individuals can hire a professional refunder to call customer service on their behalf and secure a refund for a percentage of the transaction as their fee. 

How is refund fraud going undetected?
For many merchants, refund fraud, customers claiming the delivery was not received, is going in large part undetected. Companies have seen a major increase in reports of lost or stolen packages but have a difficult time knowing if the claims are genuine or fraudulent.

Several factors are making refund abuse so prevalent:

  • Packages do get stolen. The increase in eCommerce purchases coupled with contactless delivery due to the COVID-19 pandemic has made packages piled up at the door a regular sight. People commonly referred to as “porch pirates” drive around and take boxes from doorsteps.
  • Merchants assume there will be lost packages. Companies understand that packages will go missing and prepare for such losses in their contracts with couriers.
  • Contactless deliveries eliminate proof of delivery. Many carriers no longer offer signature upon delivery to help with social distancing and to keep their drivers and customers safe. But with this, there is no longer proof that a delivery was made, and fraudsters have exploited this missing link.
  • The customer and transaction are legitimate. There are no synthetic or stolen identities involved. A customer is a real person who uses a valid form of payment.  
  • Fraudsters are experts. Bad actors have studied the return policies of prominent merchants and know precisely what to say to secure a refund. They instruct customer clients on how to avoid signing for a delivery and even know how many times they can fraud a company before raising a red flag.
  • Customer service is doing its job. Without any way to know a claim is fraudulent, companies run the risk of upsetting a legitimate customer if they deny a refund.

There are valid reasons a customer might not receive a package, and customer service is trained to rectify those situations. Add in fraudsters who know exactly what they are doing and legitimate transactions, and refund abuse becomes an exceedingly difficult crime to detect.

Fighting the Fraud

So, what can be done to fight fraudulent refund requests based on non-received claims? Until now, the only solution was to train customer service staff on how to identify bad actors. But that is not a feasible solution for large companies with call centers worldwide, and it comes with an increased risk of denying legitimate customers a refund they deserve.

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 Accertify’s Refund Abuse Protection can protect you from refund and delivery-not-received fraud.

1 https://www.digitalcommerce360.com/article/us-ecommerce-sales/

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