Research has revealed that so-called era of generous return and refund policies is over. This, according to an update from Riksified (NYSE:RSKD), which revealed that 84% of merchants find abuse harder to detect, driven by new Dark Web “Robin Hoods” and GenAI.
Riskified, a key player focused on ecommerce fraud and risk intelligence, today published its “Returns, refunds & exchanges: Global insights and policy playbook 2024,” a thorough examination of returns and refunds operations at ecommerce enterprises worldwide and the impact of fraud and abuse on retailer policies.
The research study of seven major markets, including US, UK, France, DACH, Mexico, Brazil, and Australia / New Zealand, uncovered that “returns, refunds, and exchanges constitute a staggering $394 billion expense for retailers, at least $28 billion of which is perceived to be impacted by fraud and abuse.”
Policy abuse, in which consumers knowingly “exploit or manipulate a merchant’s terms and conditions for personal gain, includes behaviors such as ordering multiple sizes and colors with the intent to return most items (“bracketing”), claiming “item not received” (INR) or “did not arrive” (DNR), returning an item as if unworn for full refund (“wardrobing”), and more.”
Not only are regular consumers committing abuse, “professional fraudsters are magnifying the challenge.”
Driven by information-sharing forums like “fraud-as-a-service” groups on the Dark Web and the availability of “malicious generative artificial intelligence (GenAI) tools, fraud and abuse have become more prolific and sophisticated. Because of this, three in four online merchants say they feel overwhelmed by policy abuse, while 84% find it harder to detect abuse of their returns and refund policies.”
Now, Riskified’s research reveals that many merchants are “tightening up returns and refunds policies due to mounting costs and the high risk of fraud and policy abuse, a reversal from the generous and flexible policies online shoppers have come to expect and appreciate from their favorite retailers.”
One-third of retailers now charge “a fee for returning an item.’
One-third of retailers are issuing “exchange-only and store credit-only policies.”
Two in five online retailers now allow “just seven days to file a claim.”
In contrast, brick-and-mortar stores have historically “provided 30 days for returns, refunds, and exchanges.”
Most merchants aren’t proactively tackling policy abuse, with “only three of 10 merchants saying they have implemented a strategy to prevent fraudulent returns and refunds.”
Internal challenges contribute to this situation, such as “lack of data integration between teams (26%), competing objectives between teams (25%), and lack of collaboration in general (24%).”
To alleviate this problem, merchants can adopt “strategies such as a ‘sliding scale’ return and refund policies based on customer value, using an identity-based technology approach to identify bad actors, or even banning serial refund and returns customers entirely.”
In order to prepare this latest research report, Riskified commissioned Opinium Research to interview over 500 senior directors with oversight of fraud, risk, and policy abuse “at large ecommerce businesses spanning North and South America, Europe, and Australasia.”
In addition, the Center for Economics and Business Research (Cebr) layered economic modeling data and analysis to “determine the direct and indirect costs of fraud and policy abuse on returns, refunds, and exchanges.”
