New research indicates a concerning trend for UK retailers, revealing they lose an astonishing USD$2.6 billion every year due to policy abuse. This significant economic impact has prompted many businesses to revise their return and refund policies in an effort to combat fraudulent activities.
The study, carried out by Riskified, a leading company in ecommerce fraud prevention, highlights a growing tendency among merchants to adopt stricter return policies. Notable brands, including Pretty Little Thing and ASOS, have already gained attention for their increasingly rigorous return conditions. As nearly 79% of merchants acknowledge the reality of policy abuse as a routine cost of doing business, major adjustments to return policies are now commonplace.
In its report, “Returns, Refunds & Exchanges: Global Insights and Policy Playbook 2024,” Riskified estimates that returns, refunds, and exchanges collectively represent a staggering USD$394 billion cost to the global retail sector. Of this, approximately USD$28 billion is attributed specifically to fraud and policy abuse. The report outlines the troubling fact that three-quarters of online merchants feel overwhelmed by this abuse, while 84% report heightened challenges in identifying fraudulent returns.
Policy abuse occurs when customers exploit a retailer’s terms for unfair advantage, employing tactics such as “bracketing”—where an individual purchases multiple items intending to keep only one—or falsely claiming that an item was never received. The stakes are raised further by the presence of professional scammers, organized into “fraud-as-a-service” groups found on the Dark Web, who have access to sophisticated tools powered by generative artificial intelligence (GenAI).
As a response, retailers have made substantial changes to their return policies. Currently, about one-third of retailers now impose fees for returns, while another third have shifted to offering exchanges or store credits instead of cash refunds. Furthermore, 40% of online retailers have instituted stricter timeframes for returns, requiring initiation within just seven days of purchase, a drastic reduction from the conventional 30-day window.
However, despite the tightening of these policies, many retailers have yet to implement effective strategies to actively combat policy abuse. Only 30% of merchants have established measures to mitigate fraudulent returns and refunds, largely due to internal challenges. Issues such as poor data integration, inconsistent priorities among departments, and a general lack of cooperation hinder many organizations from addressing the problem comprehensively.
Experts suggest various solutions to tackle this growing issue. For instance, implementing “sliding scale” policies that adjust based on customer value could help retailers strike a balance between protecting their businesses while still accommodating genuine customers. Additionally, utilizing identity-based technologies can assist in identifying habitual offenders, while some businesses may even consider banning serial refund seekers altogether.
Jeff Otto, Chief Marketing Officer at Riskified, emphasizes the importance of a nuanced approach in policy changes. “The pendulum has swung from generous return and refund policies of previous years to increasingly restrictive policies,” he states. While merchants face pressure to reduce costs, applying a blunt correction across all customers can lead to negative experiences for legitimate, high-value shoppers, essentially stunting growth and customer loyalty. By evaluating customer identities and purchase behaviors, merchants can maintain generous policies for valued customers while effectively curtailing abusive practices.
The findings of this report are derived from interviews conducted by Opinium Research with over 500 senior directors responsible for fraud, risk, and policy strategies within large ecommerce businesses. Additionally, the Centre for Economics and Business Research (Cebr) contributed to assessment efforts, elucidating the direct and indirect economic implications of fraud and policy abuse on retail return processes.
The measures taken to mitigate these financial losses highlight a critical turning point for UK retailers. By balancing consumer rights with necessary precautions against policy abuse, retailers can enhance customer satisfaction while safeguarding their financial interests. As the landscape continues to evolve, remaining vigilant and proactive in addressing fraudulent behavior will be key to ensuring the long-term success and sustainability of the retail sector.
