Fraudulent Practices Costing Retailers Billions of Dollars Annually
The Impact of Friendly Fraud
Many consumers are taking advantage of loopholes and policies to commit friendly fraud, a type of fraud that may seem harmless but is costing retailers over $100 billion per year. One individual, Robert, uses different email addresses to benefit from promotional offers, such as a yearlong Hulu subscription for only $1.99 a month. He also exploits first-time customer deals on sports betting websites and when buying Manga. Robert believes there is no accountability for these actions, and major companies should not expect empathy from consumers.
The Study on Retail Policy Abuse
Riskified conducted a study on retail policy abuse and found that it is rising for some retailers, particularly during the holidays or times of high inflation. The study surveyed over 300 global companies and revealed that while offering generous refunds, return policies, and promotions to drive sales and increase customer loyalty are important, the misuse of these policies is draining profits. Retailers face rising costs, increased shrinkage, and a slowdown in discretionary spending.
The Spectrum of Abuse
Friendly fraud encompasses practices such as using multiple email addresses to exploit promotions, buying items with the intention of returning most of them, and falsely claiming non-receipt of orders to obtain refunds and free items. However, serial and professional fraudsters take advantage of these lax policies on a larger scale. For example, one company discovered 137,000 fake accounts created by 4,000 individuals to exploit a discount promotion, costing the company over $14 million annually. Other fraudsters return empty packages for refunds or use bots to buy limited-edition items and resell them at higher prices on third-party platforms.
How Retailers are Responding
According to the survey, 65% of respondents rely on manual reviews for refund and return claims, which can be costly, time-consuming, and ineffective. To combat fraud, some retailers are becoming more selective about who receives free returns, using customer histories to determine eligibility. ThredUp, for example, has implemented a “Keep for Credit” feature where customers have the option to keep items in exchange for store credit, reducing restocking costs and encouraging further purchases.
