The 7 faces of return fraud

A Volumatic viewpoint article.

Many retailers will experience an increase of cash handling after the Christmas period, but not necessarily through increased sales.

At this time of year, many "disappointed" Christmas merrymakers across the globe will be heading back to the shops to return their unwanted gifts, either given or received, for credit notes or cash refunds.

Unfortunately this seasonal increase in refunds can also act as cover for a seasonal rise in refund fraud, costing retailers hundreds of millions of pounds. And so it is extremely important for retailers to be extra vigilant and have the correct systems in place to deal with refunds and to be on their guard...

"Return fraud has become an unfortunate feature of retail, with organized criminal gangs in particular seeking to pass themselves off as a genuine returners to extract money from retailers to which they are not entitled; ultimately at the expense of legitimate customers," says James Harris Commercial Director of global cash handling experts Volumatic.

Fraudsters, having stolen goods, will then return them for a refund. And sometimes the scam is carried out without even removing the goods from the shop.

So what can retailers do when the customer is always right, and adopting lax return policies is the only way to win customers from rivals?

1. Shoplisting is shoplifting using found receipts. Fraudsters use a discarded or stolen valid receipt as a shopping list to find items in a retail store and return them for a refund.

  • Ask for proof of identity
  • Have the customer sign a statement written in their own handwriting detailing their identity, address and purchase details
  • Offer in store credit instead of a cash refund

2. Shoplifting with a receipt. A good example of this is when the fraudster makes a purchase, leaves the shop with the item. He or she then returns to the store immediately with receipt in hand and takes another of the same item off the shelf and asks for a refund claiming that they've had a change of heart. You issue them a refund and have basically paid the fraudster for keeping your goods.

  • Apply code-laced liquids to valuable products, which will only show up with ultraviolet light. This can verify the authenticity of a purchase and whether it was the same item purchased
  • Ensure product codes match the receipt

3. Renting or Wardrobing is the buying of an item specifically on a short-term basis with the intent to return. A great example of this is buying a cocktail dress for an occasion and returning it after one wear.

  • Use plastic tags in highly visible places on items of clothing, such as the front bottom hemline, on dresses. No one will want to walk around with a tag nicely on show. Once a customer snaps it off to wear in public, the garment can't be returned

4. Tender liquidation involves a fraudster buying a good on one form of payment such as a credit or debit card, potentially even a stolen card, and exchange once or several times to switch to in store credit, which then is sold on an online marketplace. They may also ask for the returns payment to be in cash.

  • Ask for ID with the credit card or debit card
  • Compile lists of serial returners. Track patterns to identify customers whose continual returns are suspicious, make sure you take the name and address of the customer. If found to be a serial returner, future return privileges can be refused
  • Make sure the in-store credit has the name of the returner so that it cannot be used by anyone else and sold on. If indeed it is sold on, ask for ID.
  • Cash refunds should only be made if the customer can prove that the item was originally paid for in cash

5. A growing number of consumers also engage in what retailers call "Price Arbitrage". This is the process of buying differently priced, similar-looking items generally at a lower price and returning the cheaper one as the expensive item.

  • Insist the original packaging be returned with the goods
  • Check that the product codes match
  • Make sure employees know where to find a Unique Identifier of the product which will ensure it is indeed your product

6. Fake receipts and e-receipts. Retailers have found a significant increase in the use of both of these in store over the last year according to the NRF Return Fraud Survey 2014. Unfortunately there are websites that thieves can use to create duplicate or forge receipts, costing retailers thousands of pounds.

  • Train employees on how to spot a fake receipt. Does the receipt paper have a watermark; is all the information correct, do the product codes match?
  • Compile lists of serial returners. Track patterns to identify customers whose continual returns are suspicious, make sure you take the name and address of the customer. If found to be a serial returner, future return privileges can be refused

7. Some fraudsters may be deliberately damaging goods and then attempt to return them as defective

  • Ask for proof of purchase.
  • If the customer cannot provide proof of purchase, require them to show proof of identity. Have the customer sign a statement written in their own handwriting detailing their identity, address and purchase details
  • Train your staff to thoroughly check and operate products, in front of the customer, before selling them. This will put you in a better position to challenge a suspected fraudster, particularly if the defect on the product is very noticeable and is likely to have been spotted at the point of sale

With some planning, many retailers can manage return fraud effectively and inevitably help increase their bottom line. Don't rely on subjective observations and guesswork by employees, always be prepared and ensure correct procedures are in place. These methods will decrease the opportunities that offenders have to commit refund fraud and will likely result in increased customer satisfaction if you lay out refund procedures in advance.

Volumatic is a manufacturer of intelligent cash handling equipment, protecting over $2 Billion of cash every day throughout North America, Europe and the rest of the world. The company's customers in the retail, banking and leisure industries use Volumatic products to enhance security, reduce shrinkage and deliver process efficiencies.

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