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How Retailers Can Fight Back: Preventing Refund Abuse 


The past 18 months have been remarkable for eCommerce. With the Covid-19 pandemic forcing the temporary closure of bricks-and-mortar stores and keeping millions of global consumers in lockdown at home, online sales have exploded. 

In a recent report, the United Nations Conference on Trade and Development (UNCTAD) found that the share of online transactions across all retail sales grew by three percentage points to 19% in 2020, underlining the “dramatic” rise of eCommerce.  

Whilst this was good news for big and small digital retailers alike, the rise in eCommerce activity drew parallels with an increased risk of online fraud, which in the UK grew by a third last year. Illegitimate activities can take many forms in digital sales, ranging from account takeover to credit card scams. And while all of them can be incredibly complex to sort out, refund abuse can be a particularly difficult one for merchants to deal with, leaving them looking for effective and scalable fraud prevention tools. 

A threat to legitimate customers  

Refund abuse occurs when a bad actor exploits a merchant’s refund policy for their personal benefit. As opposed to chargebacks, where a cardholder queries a transaction they do not recognise with a bank, refund abuse happens between merchants and customers.  

A typical example of this type of eCommerce fraud takes place when a customer purchases a product and then claims they never received it or that one or more items were missing. They then request a refund to keep their money and the item, which they may go on to resell. Rogue customers acting on their own may be behind refund abuse, but there are also professional organisations dedicated to these activities. 

Refund abuse can turn into a headache for merchants very quickly, not only because of the financial losses associated with it, but also because it can be very difficult to detect, and excuses given by fraudsters can be impossible to verify. This means that differentiating between shady transactions and legitimate refund requests can be extremely challenging sometimes, thus increasing the risk of antagonising real customers.  

Combating refund abuse and optimising fraud prevention 

The biggest challenge merchants face is finding a way to reduce refund abuse without hurting their relationship with legitimate customers or punishing those consumers who are buying from them and using their refund policies without anyno ulterior motives. So how can online traders help prevent this form of abuseit and optimise their fraud protection strategies? 

Reassess and refine your refunds policy. Make sure your refunds policy is written clearly and in an easy-to-follow, straightforward language, so you minimise the room for grey areas and loopholes. State the returns or refund period and fees and ask customers for product information when requesting a refund, such as SKUs or serial numbers. List exceptions to your policy in as much detail as possible.  

Strike a balance. Bear in mind that customers value a flexible refund and returns policy — it might even be among the reasons a consumer chooses to shop with you rather than the competition. According to UPS, 66% of online shoppers read the return policy before making a purchase, so don't make your policy so restrictive that you scare potential (and legitimate) buyers away. 

Optimise deliveries. Send updates to your customers to let them know when their parcel is out for delivery and when it has been delivered. Asking couriers to take a picture of the delivered package is also a good idea. 

Streamline your refunds process. Using an online-only approach instead of human-driven channels such as phone is a good idea to keep refunds straightforward and to streamline your refunds process. For example, having customers fill a refund form could be a good option to help your business keep track of all requests, making it easier to detect trends and pick up on unusual activity. 

Use the right tools. At THG Ingenuity we know just how important it is to protect your business from online fraud — and the negative financial and reputational loss it can bring about. To help online merchants fight illegitimate customers, we developed our proprietary end-to-end fraud solution, THG Detect. Thanks to its bespoke machine learning models, device intelligence, and a global database, THG Detect can help you catch known fraudsters and protect your eCommerce business from fraudulent activity and refund abuse, while keeping your legitimate customers’ data safe. The SaaS platform was designed to grow with your brand, so you can rest assured that you’ll be able to scale your business globally while keeping your operations and customers safe.  

If you’d like to know more about THG Detect or request a demo, please click here.