Avoiding Ecommerce Return Fraud This Holiday Season

ecommerce return fraud illustration

Businesses are gearing up for the holiday season, and expectations are for record ecommerce sales. Insider Intelligence recently forecast that holiday retail sales will rise 2.7% to $1.093 trillion, with ecommerce increasing 11.3% to $206.88 billion, accounting for a record 18.9%.

While many of those sales will delight, others will be returned. And so, returns policies are critical differentiators for retailers. Flexible returns policies increase customer confidence, especially for online purchases, which is why savvy marketers dedicate themselves to ensuring the process is as easy as the purchase. However, this frictionless approach also opens the door to those looking to exploit it.

Return Fraud: Why Should You Care?

Return fraud is simply when someone returns merchandise that is not eligible for return, exploiting the merchant’s return policy. Return fraud is occasionally an accident from an honest customer who isn’t aware or doesn’t understand the policy. However, in many other cases it is committed deliberately to steal from the business.

Forter recently conducted a study on policy abuse with 100 senior decision makers at large ecommerce businesses. The findings: Fraud and policy abuse is costing U.S. retailers $89 billion per year. This stems in large part from the fact that as ecommerce grows, and retailers compete for customer attention with flexible policies, the surface area for policy abuse is growing. The research showed that 89% of firms have suffered at least one type of abuse; 66% have seen returns abuse grow.

Common Examples

The strategies used for ecommerce return fraud are much like those used against brick-and-mortar businesses. Unfortunately, today it’s even easier to carry out due to the meteoric rise in ecommerce combined with a shortage of workers. It’s easy to see how quickly a business can become overwhelmed with effectively managing the return process.

Here are a few of the top ecommerce return fraud tactics you should watch out for, especially this holiday season:

Purchases With a Stolen Credit Card 

This is a tactic commonly used in ecommerce. The fraudster makes an online purchase using a stolen credit card and then attempts to return the item(s) on their own credit card.


Common in the fashion space, wardrobing is the act of buying an item with the intention of wearing it once or twice before returning it and passing it off as brand new. While this is a common tactic used in brick-and-mortar businesses, there isn’t anything stopping fraudsters from using this tactic on ecommerce sites as well.

Merchandise Exchange 

With this tactic, the fraudster purchases a brand-new product that they already own and then attempts to return their existing used product for a full refund, essentially “exchanging” the item.

Combatting Ecommerce Return Fraud

Returning to our research, rapid growth in ecommerce creates challenges. Fifty-three percent of respondents cited “inability to act at scale” as a significant challenge; 32% noted “inability to block repeat abusers” as a significant challenge. Likewise, accountability for solving policy abuse isn’t always clear. Over a third of firms that faced promotions abuse stated “no clear owner” was a significant challenge in addressing abuse.

The research also showed that today, businesses aspire to solve this problem themselves. Forty-one percent of retailers said they would prefer to address policy abuse with internally developed technology. Unfortunately, there is compelling evidence that combating ecommerce policy abuse is not their core competency. Thirty-seven percent admitted they don’t automatically track the magnitude of abuse-related losses. And 39% also confessed that they are trying to manually identify repeat abusers.

So where to begin? Start simple… Much like in-person purchases, ecommerce return fraud prevention begins with your return policy. It needs to be clear, accessible and easy to understand for customers. Many businesses choose to post it in multiple areas – throughout their website, at physical checkout locations and many times printed clearly on the receipt and packing slips. Likewise, employees should be well trained and provided with opportunities to be refreshed on its details.

Next, kick it up a notch. Adjust return policies in real time based on the persona completing a transaction. A repeat policy abuser may be able to purchase an item as “final sale” whereas a high-value customer may be granted a more flexible return policy. This is possible when you can pattern match the persona to a dataset, either your own, or to a wider network via a solution provider.

By automating critical elements of your return fraud prevention process with today’s highly customizable and secure solutions, you can ensure that you are fortified against fraudsters in every form, at all times. Consequently, you can alleviate your team from having to bear the entire burden of identifying and fighting fraud, and instead they can rededicate their time and expertise to increasing sales and improving your bottom line.

Yohanna Andom is a Senior Product Marketer for Forter