Returns Abuse With a Twist

The tried-and-true method of fraud is getting an upgrade: double dipping 

According to the National Retail Federation (NRF), for every $100 in returned goods during 2021, $10.30 was lost to return fraud.  

In times of economic turmoil, it’s not surprising that even the more stringent consumers might consider compromising their values to safeguard their wallets. 

Abuse of Returns Has Been Industrialized

Returns abuse, sometimes referred to as refund abuse or refund claims abuse, has increased as more buyers transition to online purchases. Over the past few years, the increase has begun to seriously impact retailers’ bottom-line. 

The driving force behind the increase? Returns abuse has become industrialized. The practice changed from being a do-it-yourself project by thrifty customers to a whole professional enterprise. Specific fraud rings, nicknamed “refundsters” due to their major focus on returns abuse, provide services to consumers to help them engage in returns abuse more quickly and efficiently. 

The process is pretty straightforward:

1. An item is ordered and delivered to a customer.
2. The scammer gets in touch with the retailer and says the product has either not arrived or was damaged in the shipping process. The scammer will customize their story in accordance with the retailer’s policies to guarantee the return.
3. You might be asking: but wouldn’t the retailer request the package back? There are numerous ways to get around this if the consumer is required to return the physical item, including mailing an envelope with the proper sticker that will be scanned and it will be discarded, an empty box, or one with the appropriate weight in pebbles or dry ice (which has evaporated by the time the box reaches the retailer, leaving it looking like the merchandise was stolen in transit).
4. The buyer pays the refundster 5-20% of the item’s value in addition to keeping the item and the refund.  

Beware of “Double Dipping”

Returns abuse is nothing new, but there is a new twist to be aware of: double dipping. 

According to Forter’s research, an increasing number of people who misuse returns policies — and in particular, people who misuse Item Not Received (INR) policies, are engaging in double dipping by simultaneously requesting refunds from retailers and sending chargebacks to banks.

With these attempts, the retailer risks losing in three different ways: 

1. They misplace the item and are unable to sell it to another party
2. They must reimburse the consumer.
3. They are required to pay the chargeback.

Although double dipping still makes up a relatively small portion of all returns abuse (the exact percentage varies greatly between businesses and industries), it is rapidly expanding. From our own data, we can see that double-dipping claims grew by 35% between Q3 2021 and Q3 2022.

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Returning Abuse Misses a Golden opportunity

That kind of abuse seems like it shouldn’t be feasible. How can a business be charged back if it has already granted a refund?

In reality, it shouldn’t be. Yet, due to the fact that payment systems were not initially created to handle the complexity and intricacy of modern digital commerce, double dipping refund abuse manages to evade detection. There are numerous ways for this to occur:

• Between your organization and your processor or between your processor and the bank—knowledge does not always synchronize in real time. A window of opportunity for double dipping may open up with any delay.
• The department handling chargebacks and the one handling refunds may not be aware of each other’s activities if there are silos between them. That may go one of two ways: Even if the chargeback is sent first, the support representative in charge of refunds may not be aware of this and may still grant the refund. Even though the chargebacks staff may not be actively monitoring whether refunds have been given, the refund may have already been given.

How can the issuing bank be aware that a sale has been refunded if your refunds aren’t linked to the same token that identifies the initial transaction?

Prior to forwarding a chargeback, your processor might not verify if a refund has been given. If so, you can adjust that so that the processor can divert the chargeback and spare you from having it increase your chargeback rate. See how frequently the processor retrieves the return data; if it does so only once per day, you may still have time.

An unhappy consumer may feel justified in filing a chargeback if they were told they would get a refund but never did. By making sure that your refund procedure is simple and alerting clients in advance that it can take a few days to receive the refund, you can prevent this.

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In Conclusion 

Overall, fraudulent returns are causing retailers to lose money, that’s why it is important for payments, transactions, fraud management, and abuse teams to work together. Knowing who’s behind an interaction and whether that person can be trusted is crucial to stopping returns abuse from impacting your bottom line. 

[To share your insights with us, please write to sghosh@martechseries.com]