Returnless Refunds, the Rise and Risks

In a classic case of good news/bad news for the U.S. retail sector, ecommerce sales are expected to surpass $1 trillion for the first time in 2022, fueled in part by the acceleration during the pandemic. The rapid surge in ecommerce has also led to a major uptick in product returns, putting more operational stress on merchants.

Already weighed down by ongoing supply chain concerns, increasing shipping costs and excess inventory, retailers must rethink how they handle returns. One of the new approaches being adopted is returnless refunds – refunding customers without requiring they ship the item back. Alix Partners estimated returnless refunds hit $4.4 billion in 2021.

Several major chains have adopted returnless refunds, or “keep it” policies, for certain items – and for good reason. Returns often cost retailers more than the products are worth, so letting customers keep the item makes clear financial sense. It can also have a positive halo effect in terms of customer behavior. For inexpensive products or bulky items like furniture, the “keep it” approach is cheaper than shipping the item back, restocking, selling and shipping again. Furthermore, lenient return policies help build customer trust and brand loyalty.

But instituting returnless refunds also has its own risks, with the potential to encourage malicious shopper behavior and opening another avenue for scammers trying to score free merchandise.

Combating a New Type of Return Fraud

Of the many different types of fraud that merchants have to contend with, returns fraud can be one of the most difficult to track and prevent. This is largely due to the wide range of tactics bad actors use, from simple price tag switching to shoplifting.

Fraudsters are wising up to the latest return techniques so much that in a 2021 survey of large ecommerce companies, two out of three reported an increase in returns abuse over the past 12 months. The annual cost of fraudulent returns in the U.S. was more than $25 billion in 2020, and over half of businesses lose more than $5 million every year because of returns abuse.

While the goal of returnless refunds is to ease the operational burden on retailers and brands while keeping good customers happy, the new policy could incentivize fraudsters to take advantage.

The question then becomes, how do you differentiate a valid return from a fraudulent one?

Staying Steps Ahead of Policy Abusers

Stopping policy abuse starts with knowing who is behind a transaction.  Fortunately, merchants – regardless of whether they choose to offer a “keep it” policy – can and should take steps to prevent policy abuse from damaging their bottom line.

Understand Who’s Behind a Transaction

It doesn’t matter what is being purchased so much as who is doing the purchasing. Decision engines that leverage advanced technologies like AI can analyze a wide network of behavioral data to help merchants distinguish legitimate, trustworthy customers from policy abusers. Looking at personas within their internal data and matching them to known behavioral patterns enables merchants to make precise decisions about a customer’s trustworthiness.

Tailor Policies and Enforcement for Every Customer

Not all policy abusers behave the same way, and the costs to a business will vary from one abuser to another. Customizing policies and enforcement is a way for merchants to maximize revenue and customer lifetime value. For example, you can implement different tiers of policy enforcement to only offer perks like returnless refunds to your most trusted, repeat customers.

Automate Across Channels and Touchpoints

With the help of machine learning, decisions for every customer interaction can be fully automated and delivered in real time. If the decision engine identifies a customer as a policy abuser, it blocks them from purchasing or requesting a return. If the customer is deemed legitimate, they are automatically assigned the appropriate policy. This reduces the need for manual reviews, allowing you to deliver a seamless and friction-free experience to every customer.

Companies that invest in an intelligent, robust returns fraud prevention program can strike the right balance between fighting bad behavior and delivering exceptional customer experiences.

Diana Edmonds is senior product marketing manager for Forter