The pandemic changed the way consumers shopped. A black swan event changed consumer behavior and Online shopping is one of the segments to reap benefits. The pandemic and the exponential growth in e-commerce forced traditional brick-and-mortar shops to adapt to the evolution.
Pre-pandemic brick-and-mortar shops kept a cautious eye on shoplifters but the e-commerce boom came up with its own shoplifting nemesis, say Hello to RETURN FRAUD.
Fraudsters abuse the retailer’s fraud policy which was actually created for customer delight and it’s the smaller e-retailers who bear the brunt of Refund Fraud.
The modus operandi of Refund Frauds differs from traditional frauds as it takes place post transaction — once the goods have exchanged ownership from the merchant to the consumer.
A thriving ecosystem, Fraud-as-a-Service (Professional Refunders) has come into place to support those who wish to take advantage of lax return policies without actually having to go through the process. Reddit and Discord channels are leveraged as promotional grounds for these Illegal Life Pro Tips (ILPT)
Modus Operandi
1. Everything is legitimate during the online transaction. Fraud is initiated once the good is received by the consumer.
2. Consumer goes to a Professional Refunder who charges a percentage cut on the refund value.
3. Refunder impersonates the Consumer
4. Refunder initiates the escalation with the merchant and uses the PERFECTED METHODS to get a refund without returning the product.
A few of the Perfected Methods :
a) Substance Leak — With doctored images/videos refunders report hazardous breakage such as monitor capacitor leakage, or battery acid leakage, thus making the product legally un-shippable.
b) Partially Empty Box — Generally used for tracked shipping where the package is claimed to have arrived but has missing components.
c) Fake ID Tracking Numbers — A properly weighed package is returned back without the actual goods. The shipping address is doctored to a new but incorrect address. Refunder then initiates a return claim with the merchant — to whose naked eye the package appears to be shipped and delivered back.
d) Blood or Maggots — Claiming of finding questionable substances (again, doctored images/videos) in the product received and thus a reason for why one can’t possibly handle the opened package.
Refund Fraud not only is a concern to merchants but also runs a risk of putting consumers’ virtual assets at risk such as email, passwords, card details, etc — as refunders offer Fraud-as-a-Service, access to the buyer account.
Apart from the complicated methods listed above employed by professional refund fraudsters, consumers, with a Robin Hood mentality, too are learning about refund fraud and executing Refund Fraud as :
a) Bricking: A working item ( generally electronic items) is purchased with the intention to be returned after stripping down the valuable component and rendering the item eventually unusable.
b) Wardrobing: Majorly observed with expensive clothing. An item is purchased, used, and eventually returned.
c) Switch Fraud: Returning a previously owned defective or damaged identical item with the aim of cashing on to the refund.
Be it the retailers or the e-retailers have a return policy in place but a fine balance needs to be maintained — neither overly complex nor overly relaxed. The process of refund dents a blow to the bottom line not only in terms of labor involved in the process but also in refurbishing the returned items.
Trying to avoid Return Fraud by adding manual resources will be a mountain task in this era of data where organizations are sitting on a mountain of data as well as leveraging data from other sources. Multiple data enrichment tools provide services as quick reverse checks on multiple data points for instance email addresses. Current innovations in fraud detection software over the recent years have made it possible to curb the menace of fraud even with very little technical knowledge.
Author:
Sujit Kumar Mahato, Product Manager
Wibmo A PayU/Naspers FinTech Company