Whilst the UK’s Payment Systems Regulator (PSR) introduced new rules around Authorised Push Payment fraud last week to curb its increasing threat, another fraud method is also threatening retailers and merchants alike.
John-David Klausner, VP of Business Development at Loop Returns, reveals the “staggering figures” that attributes to rise in returns fraud and why those in the retail industry are concerned of its surge.
In the world of retail, the growing trend towards online shopping comes with its challenges; supply chain disruptions, rising advertising costs, and the ever-fluctuating consumer demands.
However, a new and insidious threat is rapidly emerging as the biggest headache for UK retailers: returns fraud and policy abuse.
According to our most recent retail insights report, an overwhelming 91% of UK retailers have reported an increase in returns fraud or policy abuse over the past year. This staggering figure should set off alarm bells across the retail industry, as it not only threatens the bottom line but also undermines the trust that forms the bedrock of consumer relationships.
It is tempting to attribute this rise in fraudulent returns to a few bad apples, but the reality is far more complex and troubling.
The data suggests that nearly half of retailers believe the root cause of this uptick in fraud is the current economic climate. With inflation and living costs soaring, some consumers are turning to dishonest practices as a means of improving their financial situation. While it’s easy to empathise with those struggling to make ends meet, the impact on retailers is severe.
Returns fraud is not a victimless crime. For every £100 in returned merchandise, retailers lose £10.40 to fraud. This is not just a minor inconvenience; it’s a significant drain on resources that could be better invested in improving products, enhancing customer service, or expanding business operations.
The long-term consequences could be dire, especially for smaller retailers who may not have the financial cushion to absorb these losses.
The most common forms of fraud include customers attempting to return items that aren’t eligible for a return, disputing the quality of items without cause, or engaging in “wardrobing,” where they return clothing after wearing it. These practices not only hurt retailers financially but also create operational challenges, as stores must navigate the delicate balance between offering a seamless return experience and protecting themselves from exploitation.
Moreover, the report reveals a startling paradox: while 96% of retailers take this issue seriously, only 44% believe their current fraud detection and prevention measures are effective. This disconnect underscores the urgent need for more robust strategies to combat returns fraud.
Some retailers have started to take action, tightening return policies, offering store credit instead of cash refunds, or even implementing return fees. While these measures may deter fraudsters, they risk alienating genuine customers who may feel unfairly penalised. Striking the right balance is crucial, yet incredibly challenging.
The solution lies in a data-driven approach. By leveraging advanced fraud detection models, retailers can more accurately identify suspicious behaviour while continuing to offer a positive return experience for honest shoppers.
Additionally, educating consumers about what constitutes fraud and establishing clear consequences for dishonest behaviour are essential steps in curbing this trend.
Ultimately, the retail industry must adapt to this new reality. As returns fraud becomes more prevalent, retailers need to be proactive rather than reactive. The industry can no longer afford to view returns as a simple cost of doing business; it must be treated as a critical component of the overall customer experience and a potential vulnerability that needs addressing.
The future of UK retail depends on it. If unchecked, returns fraud could erode profitability, strain customer relationships, and ultimately reshape the retail landscape in ways that could hurt both businesses and consumers alike. It’s time for retailers to step up, invest in smarter fraud prevention, and ensure that they can continue to thrive in an increasingly challenging environment.
