Retailers’ Options for Fighting Return Fraud Growing 

As new forms of shopping develop, so do new forms of fraud.

There's an ongoing battle between retailers and those looking to make a quick buck. Fortunately, there also are a lot of clever minds behind the scenes figuring out ways to make shopping more secure for both retailers and consumers.

The Problem
Retail fraud, in all its forms, takes a large chunk out of retailers’ revenues every year. That chunk is measured in the billions, and it's constantly growing.

Return fraud — i.e., returning a stolen product for cash or using a fake receipt to falsify a return — is one of the most common types of retail fraud. According to the National Retail Federation (NRF), total annual returns are reaching beyond $250 billion. The NRF estimated that return fraud would cost retailers $2.2 billion during the holidays alone in 2015, up from $1.9 billion in 2014.

Retailers estimated that 3.5 percent of their holiday returns would be fraudulent in 2015, which was also an increase from 3 percent in 2014.

According to the NRF report, the most common form of return fraud, identified by 91.9 percent of retailers, is the return of stolen merchandise. The report also found that 85 percent of retailers require identification when making a return without a receipt to try to curb fraud.

Limiting these kinds of fraud can not only protect a retailer’s product and bottom line, but it can also allow for a better customer experience.

The Old Solutions
The methods retailers traditionally used to prevent fraud have staled as fraudsters find new and more efficient ways to sneak unwarranted returns past the point of sale.

The most conventional method for stopping return fraud is requiring a receipt for a return and limiting the number of returns a single customer can make in a given time period. Some retailers require the return tender to match the purchase tender (i.e., a purchase made with a credit card can only be returned as credit to that same card).

Another common method involves authorizing returns through call centers, which slows the return process significantly, leaving the customer waiting.

Not only are these methods limited in actual effectiveness, but they're also damaging to the customer experience. Requiring a paper receipt can leave less fastidious consumers stuck with a broken or unwanted product, as can judging the validity of a return on the consumer instead of the product. This effectively makes the consumer seem less like a priority.

The New Solutions
There are two notable advancements in product and return security available in today’s market that are helping retailers discover new ways to curb return fraud.

1. Customer loyalty programs: These self-implemented programs create accounts and purchase histories for each customer, allowing retailers to track and monitor returns. They also allow retailers to determine if a customer is in good standing, and then to base the validity of a return on that standing.

Detailed customer data collection will help retailers limit potential fraudsters from making invalid or excessive returns. However, that benefit may come at the expense of consumers who are in good standing by forcing them to maintain a loyalty membership that may or may not be wanted.

2. Transaction optimization solutions: Transaction optimization solutions use predictive analytics, return optimization and real-time decisions to disrupt attempted fraudulent and abusive return behaviors. Upon a return, the retailer scans the original sales receipt or customer's ID to link the returns behavior to the individual attempting the return. Each return transaction is behaviorally analyzed against the retailer’s return policy to help determine the appropriate outcome.

Consumers who return or exchange products excessively, based on guidelines set by the retailer, may be prevented from making future returns. Like customer loyalty programs, transaction optimization solutions are effective at identifying potential problem consumers and limiting their ability to make a return.

Kristen Secreto is vice president/general manager at InComm Product Control, a provider of product return solutions, returns management and retail fraud solutions.