Online Retailers Are Losing Money to Policy Abuse, Riskified Report Claims

Riskified (NYSE:RSKD), a firm focused on ecommerce fraud and risk intelligence, published “Policy Abuse and Its Impact on Merchants: Global Benchmarks 2023,” revealing how consumer misuse of refunds, returns, and promotional programs, “alongside resellers, is forcing retailers and other merchants to strike a difficult balance between keeping customers and accepting an inevitable loss in profits.”

The report found that policy abuse–behaviors “such as excessive returns, refund scams such as claiming an item was not received or returning empty boxes, abusing promotions like coupon codes or loyalty program rewards, or reselling limited-inventory items–is soaring: 90% of online merchants believe policy abuse is a significant problem for their bottom lines.”

As noted in an update shared with CI, it was reported “that the cost to process $100 of returned merchandise is about $26.50.”

Riskified’s survey found “that this number is likely even higher.”

Two-thirds of retailers (67%) said they “can recoup less than half of the total value of a returned item.”

Lenient return policies and promotion programs are “driving lost profits, yet merchants feel they must maintain their approach: 93% of retailers said it is “somewhat important” or “very important” for their organizations to offer generous refund and return policies to win new customers and retain loyal ones. 90% of respondents said they are reliant on promotions to drive sales and remain competitive.”

Other key findings from the Riskified’s policy abuse benchmark report include:

  • 9 out of 10 online retailers said they face significant costs due to policy abuse.
  • Losses from policy abuse have increased year-over-year (YoY). 57% of merchants faced increased costs from INR (item-not-received) abuse between 2021 and 2022, compared to a 45% YoY increase for reseller abuse, a 38% YoY increase for promotional code and loyalty program abuse, and 37% YoY increase for returns abuse.

According to Riskified’s data, the motivation for committing policy abuse is “due to a mix of economic factors (such as inflation or entering a holiday period during which consumers have stretched disposable income) and emotional factors (such as a bad customer experience with a retailer).”

Methodology

Riskified commissioned WBR Insights, the custom research division of Worldwide Business Research, “to interview more than 300 leaders from across a variety of online merchant organizations across the world, including United States, Australia, China, Japan, United Kingdom, Germany, Austria, Switzerland, Brazil, and Mexico.”

The companies represented report “at least $500 million in total annual revenue from a variety of industries including fast fashion, sporting goods, food delivery, consumer electronics, and travel, among others.”

The respondents consist of director-level and “above management personnel who are in charge of fraud & risk, customer care, ecommerce, digital, asset and loss protection, IT, and payments and finance functions.”


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