Returns Fraud Is Closing In—Your Business Could Be the Next Target

Do you know what the biggest threat to your online business is right now?

No, it’s not inflation, data breaches, or even supply chain issues.

It’s RETURNS FRAUD.

There are buyers out there who have developed a stomach for scamming online sellers like you by exploiting return policies for quick cash.

You’re probably thinking, "Fraud has always been a thing. So why should I worry now?"

Yes, fraudsters have always been around, but here’s the problem: a recent survey by Loop Returns shows that returns fraud is at an all-time high. It’s affecting more online businesses than ever before. And if you’re not careful, your store could be next.

This isn’t just something that happens to other sellers. It’s real, and it’s happening now.

Why are cases of returns fraud going up?

There are quite a few reasons, which we'll get into later, but the real issue is who’s committing these fraudulent activities now, compared to before.

You might think scammers have just gotten better at tricking online sellers, but that’s not the whole story. The real problem is that the number of people doing it has skyrocketed.

The surprising part? It's not just the usual scammers anymore. More and more regular, honest buyers are getting into this shady behavior.

Why? Because the system makes it easy for them to take advantage.

I can think of at least ten ways returns fraud can happen—temptations and loopholes that fraudsters love to exploit.

1. With the US economy struggling, people are desperate to get their money back. They’re looking for any loophole to make that happen, even if it means taking advantage of your return policy.

2. Most e-commerce platforms favor the buyer in disputes. So, if someone files a return or complaint, the odds are stacked against you. These platforms side with buyers almost every time.

3. Many return policies are way too generous, giving buyers plenty of time to use your product and then return it—sometimes after they’ve already used or even swapped it for something fake or stolen.

4. When an item comes back, it’s tough to know if it’s in the same condition as when you sent it out. Verifying this can be tricky and expensive, making it easy for fraudsters to slip through the cracks.

5. Without meeting your customers in person, verifying their identity can be difficult. They could be using fake accounts and still qualify for a refund.

6. If a buyer claims their package didn’t arrive or the box was empty, shipping companies usually won’t take the blame. That leaves you to foot the bill and issue a refund—even if the claim is bogus.

7. If you sell both online and in-store, fraudsters can exploit inconsistencies in your return policies. They might buy something at a discount online and return it in-store for a full-price refund.

8. Unlike big retailers, you might not have the advanced tools to track and catch repeat offenders. Fraudsters can keep returning items across multiple orders, and without proper tracking, they can fly under the radar.

9. Customers might return empty boxes, used items, or only part of the product, keeping the valuable pieces. Since these returns come through the mail, spotting these scams in time is a serious challenge.

10. Fraudsters can take advantage of promotions like buy-one-get-one-free to profit off your hard-earned sales.

So, how can you avoid getting caught in this kind of scam?

It’s not just about losing money on the sale—you’ll also end up paying for shipping, restocking, and extra labor.

And that’s not all. Fraudulent returns can throw off your inventory, especially when items come back damaged or in unsellable condition. This can lead to overstock or stockouts, messing with your restocking schedule.

Even worse, if fraudulent returns pile up, you could face chargebacks, which not only cost you but can also strain your relationship with payment providers.

So, how do you protect your online business from this?

According to a recent Digital Commerce 360 report, many retailers—both online and in-store—are using some smart strategies to fight returns fraud, and you can do the same to protect your business.

First, take a look at your return policy. Tightening things up, like shortening the return window or adding stricter conditions, can make a big difference. For example, Amazon has cut down the time to return certain items, which helps stop people from abusing the system.

You can also make the return process a bit more involved. Adding steps like requiring the original packaging or proof of purchase is an easy way to filter out those trying to scam you.

Another tactic is to highlight the environmental impact of returns. Let your customers know that returning items contributes to waste and emissions, just like brands like Patagonia do. It’s a subtle way to reduce unnecessary returns while showing you care about the planet.

If you notice repeat offenders abusing your policy, don’t hesitate to ban them. Amazon does this to keep things fair for everyone, and it’s okay for you to do the same.

Lastly, consider charging a small return fee. Zara does this, and it discourages impulsive returns, plus it helps cover the costs.

These steps are simple to put into place and can seriously cut down on return fraud.

But it’s not just about making returns harder—you also want to ensure your products are high-quality and accurately described in your listings to avoid genuine returns.

And if you’re using an ecommerce platform, be sure to read and follow their return policies. Sometimes, you can even use those policies to your advantage and give fraudsters a taste of their own medicine.

I hope these tips help you protect your business from these little pests!