Returns fraud and policy abuse have surged to unprecedented levels, with U.S. merchants losing an estimated $101 billion in 2023 due to these issues.
In an interview with PYMNTS, Hannah Bravo, CEO of Loop, offers a detailed analysis of these growing challenges and how businesses can effectively address them. Loop Returns, a returns and reverse logistics platform, works with clients such as Vitality, Jaxxon, DailySale, Tortuga and Monos.
The escalating issue of returns fraud can be linked to several factors.
“The tightening economy has led to consumers getting creative when it comes to returns fraud, and online shopping is just making it easier,” Bravo said. “Along with this, the intent to use items only temporarily and dissatisfaction with product quality are also driving factors in the rise of policy abuse.”
This behavior, Bravo noted, “might be a reaction to overly lenient returns policies that were prevalent during the eCommerce boom and the pandemic, when companies prioritized shopper convenience over profitability.”
Despite its financial toll, Bravo said returns fraud presents a significant opportunity for both brands and solution providers.
“Returns fraud and policy abuse have become difficult behaviors for retailers to prevent, turning into a major drag on many brands’ margins and contributing to major financial losses,” Bravo said.
For companies like Loop, this means seizing the opportunity to offer comprehensive fraud prevention solutions, Bravo said, highlighting how Loop’s platform provides integrated tracking tools, advanced analytics and automation to help retailers address fraud more efficiently.
Retailers face the challenge of implementing effective fraud prevention measures while maintaining a positive customer experience, Bravo said, adding that “the key to addressing this issue is adopting a data-driven strategy.”
By employing sophisticated fraud detection models, retailers can identify suspicious activities with greater precision while still providing a seamless return process for legitimate customers. She emphasized the importance of clear communication, saying that brands need to “clearly inform consumers about what it defines as ‘fraud’ and then clearly communicate the consequences for dishonest actions.”
The National Retail Federation (NRF) has reported that retailers are using various strategies to combat returns fraud.
“Merchants are testing in-store policy changes and limiting the flexibility of online returns; closely monitoring consumer responses to new policy changes; introducing shorter return windows; charging return fees for policy abuse; and even canceling or disabling user accounts for outright fraud,” Bravo said. These strategies aim to curb fraudulent behavior while balancing the need for a positive customer experience.
Implementing stricter return policies can be challenging for retailers, since it can foster customer dissatisfaction and hurt loyalty. Bravo noted. To navigate this, she said retailers can adopt policies such as requiring items to be returned with tags, prohibiting returns on final sales and limiting serial returns. Bravo advised retailers to consider these measures to help maintain a positive customer experience and protect their bottom line.
Return fees, tighter return windows and banning repeat offenders play crucial roles in mitigating fraud, according to Bravo. But she cautioned: “If done so rashly, these tactics can negatively impact customer loyalty.”
The effectiveness of these measures depends on their implementation and balance with customer experience.
Moreover, traditional methods of fraud detection are often ineffective.
“Many merchants today rely on manual detection and prevention measures that tend to be highly labor-intensive, time consuming and too rigid,” she said, advocating for a more flexible approach that leverages advanced analytics and automation to improve accuracy and efficiency in fraud detection.
Looking ahead, Bravo said she predicts that returns fraud will continue to evolve with technological advancements.
“Online shopping makes it much easier for fraudsters to make false claims,” she said. To stay ahead, Bravo recommended that companies adopt stricter returns policies, consider solutions like paid returns or in-store credit and maintain updated blocklists to prevent repeat fraud.
Loop Returns is advancing technology to combat returns fraud.
“We’re developing a fraud detection model that helps merchants assess fraud and abuse risk in real time,” Bravo said, adding the model, combined with Loop’s comprehensive platform, allows merchants to detect and manage high-risk returns, prevent policy abuse and remove fraudulent customers effectively.
One common misconception, Bravo noted, is confusing returns fraud with returns abuse.
“Returns ‘fraud’ involves deliberate, malicious actions, while returns ‘abuse’ often stems from common shopping behaviors,” she explained. Understanding these distinctions is crucial for retailers to tailor their strategies and address each issue appropriately.
Addressing returns fraud requires a multifaceted approach, combining stringent policies with advanced technology and clear communication.
“As technology continues to evolve, returns fraud will also be on the rise,” Bravo explained. “Online shopping is a huge contributor, making it much easier for fraudsters to make false claims. For example, claiming a legitimate purchase they made was never received, and then asking for a refund while keeping the product.”
Companies need to be hyper-aware, she added, of trends to prevent returns fraud and abuse the best they can.
“Enforcing stricter returns policies is something retailers need to adopt — considering solutions like paid returns and/or in-store credit only,” Bravo said. “Retailers can also add people to blocklists who have abused the system before to prevent repeat fraud without impacting the customer experience for honest shoppers.”
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