Retailers are losing billions to returns, refunds, and exchanges, with $394 billion spent globally, out of which at least $28 billion is directly impacted by fraud and abuse, according to Riskified’s report. The report highlights how the rise in fraud is forcing eCommerce retailers to tighten their return and refund policies, reversing the flexible terms shoppers have come to expect.
“The good news is this problem can be addressed surgically with an identity-based technology approach that carefully assesses the right policy to implement across the spectrum of customers – maintaining generous policies to delight high-value customers while cutting off abusive identities at the point of purchase or claim,” said Jeff Otto, CMO at Riskified.
The report reveals different forms of “policy abuse,” where consumers intentionally exploit a retailer’s return and refund policies for personal advantage. Common examples are ordering multiple sizes or colours intending to return most items (“bracketing”), falsely claiming that items were not received (“item not received” or INR claims), and returning items as if unused for a full refund (“wardrobing”).
The frequency of fraud has left three-quarters of online merchants feeling overwhelmed, with 84% saying that identifying abuse in their return and refund policies has become difficult. In response to rising costs and fraud risks, many retailers are adopting stricter policies, a shift from the more lenient terms that online shoppers expect.
The report reveals that one-third of retailers now impose fees for returns, while another third are shifting to exchange-only or store credit policies. Moreover, two in five eCommerce merchants have reduced the time frame for filing a return or refund claim to just seven days, a significant change from the traditional 30-day window typically offered by brick-and-mortar stores.
Despite these changes, only 30% of retailers have implemented strategies to combat fraudulent returns and refunds. Internal challenges, such as poor data integration between teams (26%) and conflicting goals (25%), contribute to the lack of proactive measures.