New research reveals a troubling trend among UK retailers who are adjusting their return policies in response to significant losses caused by fraudulent activities and policy abuse. A study conducted by Riskified, a company dedicated to ehancing ecommerce fraud prevention, has uncovered the stark reality that UK businesses are losing approximately $2.6 billion each year. This alarming figure is prompting many brands to adopt stricter return conditions, a shift epitomized by the actions of prominent retailers like Pretty Little Thing and ASOS.
According to Riskified’s “Returns, Refunds & Exchanges: Global Insights and Policy Playbook 2024” report, around 79% of merchants now consider losses caused by policy abuse as an unavoidable business expense. This type of abuse includes practices such as “bracketing,” where a customer orders multiple items with the intent of returning the ones they do not want, as well as falsely claiming that products were never received. The report highlights that professional scammers are exacerbating the issue, leveraging “fraud-as-a-service” networks available on the Dark Web alongside increasingly sophisticated techniques fueled by generative artificial intelligence (GenAI).
The scale of the problem is significant. Globally, returns, refunds, and exchanges account for a staggering $394 billion in costs to the retail sector, with at least $28 billion attributed to fraud and policy abuse. Riskified’s report further underscores that three-quarters of online merchants feel overwhelmed by the prevalence of policy abuse, and 84% estimate that detecting such activities has become more challenging.
In direct response to these mounting challenges, many merchants are now implementing more stringent return policies. Notably, one-third of retailers have begun charging fees for returns, while another third are shifting to policies that emphasize exchanges or store credits instead of cash refunds. In a move away from traditional norms, 40% of online retailers now require returns to be initiated within just seven days of purchase, contrasting sharply with the 30-day return windows common in physical retail environments.
Despite the tightening of return policies, many retailers remain hesitant to proactively address the issue of policy abuse. Only 30% of merchants have devised strategies aimed at mitigating fraudulent returns and refunds. This reluctance stems from various internal challenges, including poor data integration, conflicting priorities among departments, and a lack of coordinated efforts. Proposed solutions encompass “sliding scale” policies that adapt based on customer value, employing identity-based technologies to identify habitual offenders, or even outright banning serial refund seekers.
Jeff Otto, Chief Marketing Officer at Riskified, reflects on this shift, stating, “The pendulum has swung from generous return and refund policies of previous years to increasingly restrictive policies. Merchants are under pressure to cut costs, but if this adjustment is done uniformly across all customers, it may create negative experiences for high-value shoppers, thus hampering growth and loyalty.”
Valuable insights are gleaned from a comprehensive survey involving interviews with over 500 senior directors responsible for fraud, risk, and policy strategies at large ecommerce companies. The report also features economic analysis from the Centre for Economics and Business Research (Cebr) to better understand the direct and indirect economic impacts of fraud and policy abuse on the retail sector.
As UK retailers navigate these uncharted waters, they must strike a balance between protecting their revenues and maintaining a positive shopping experience for their customers. A nuanced approach, utilizing both advanced technology and efficient policy adaptations, may offer the solution needed to not only reduce losses but also foster loyalty among genuine consumers.
In conclusion, the reported losses of $2.6 billion due to policy abuse emphasize the necessity for retailers to rethink their strategies. Understanding the distinction between regular customers and those engaged in fraudulent activities can guide the implementation of more effective return policies. With the right approach, retailers can mitigate losses while still catering to their loyal customer base, ultimately enhancing their bottom line.
