Losses arising from return fraud, bots, and coupon stacking are costing retailers a stunning $100 billion annually, according to a study published by fraud solutions provider Riskified.
The study, which is based on a survey of 300 companies with more than $500 million in annual revenue, found that policy abuses, such as return fraud (the act of buying multiple items with the intention of returning them after use) and the use of fake email addresses for promo codes, is increasing amidst high inflation and an incoming holiday season.
Other forms of fraud that have gained prominence include returning empty packages for a refund and using bots to buy highly valued, limited-edition products, only to resell them on another third-party platform for a higher price.
While many consumers today engage in different forms of friendly fraud to varying degrees, fraudsters are also increasingly taking advantage of lax policies that many retailers maintain to offer their customers a seamless experience.
In its survey, Riskified identified 137,000 fake accounts that some 4,000 customers created to take advantage of a 35% promo discount a retailer offers to first-time customers, costing the company more than $14 million every year.
Another notable example is a U.S.-based pet supply company, which lost $3.5 million in Q1 2023 to a small group of fraudsters who exploited the company’s 35% to 50% coupon code.
Other than exploiting coupons, fraudsters are also increasingly scamming retailers by ordering products and then claiming they never received it, which then makes them eligible to get a refund or order the same item again for free. Fifty-five percent of surveyed retailers said costs associated with this form of fraud were “very significant” last year.
“In our experience with merchants over the past two years, especially as they’ve been sharpening their pencils around profitability, they’ve really started to take a harder look at this,” said Riskified CEO Eido Gal.
“When you think about how easy it is to call in and say I never received my item, I received the wrong item, I want a different size, you can get a refund or a new item incredibly easily,” Gal said. “It’s much more easier to do that than it is to steal financials or credit card information, and I think fraudsters have caught up to that.”
A key problem hindering merchants’ ability to fight this fraud is the lack of time or resources to follow up on claims. In many cases, a company may spend more money investigating the claim than accepting their customers’ claims and issuing a refund. Sometimes, companies also do not have visibility into last-mile delivery partners, making it harder to invalidate claims with certainty.
The high costs associated with nefarious actors abusing coupons and returns policies are prompting many retailers to be selective in when and to whom they hand out freebies, such as free returns, taking customers’ ordering histories into account.
“Let me give my best customers free returns always because that’s the convenient thing and that’s what I want to do to be competitive and let me work through and understand the identities of who’s not my best customer, and they would still have that restocking fee,” Gal said.