Most Common 5 Types Of Return Fraud Explained
Types of Return Fraud
Here are the most common types of fraud to watch out for in Retail and eCommerce shops
1. Receipt Falsification
Is a common way to conduct fraudulent return transactions. Any shopper can find a similar receipt online, or copy and augment a copy that’s inconspicuous to the untrained eye. Typically, someone will shoplift a high-end item and provide a deep-faked receipt to get the money from the bag. Employee-assisted fraud is a type of organized crime or insider fraud where the employee knowingly accepts a return to allow the person returning to receive the money fraudulently. Price switching occurs when someone places a higher price on a luxury item to get more money when returning the product back to the retailer. Pricing arbitrage is when the returner buys a cheaper item with a higher price tag switched onto it, to then return it and profit from the price difference.
2. Switch Fraud
Switch fraud is one of the more well-known types of fraud where the purchaser returns a previously owned or broken item under the guise of being a higher-end item to make a profit. Bricking is a type of return fraud where a purchaser buys an electronic item to strip it of its usable components and then returns it for a profit. A Gameboy could be returned but it’s rendered as useful as a ‘brick’ or a sardine can without the parts that make it a lasting childhood memory.
3. Cross Retail Fraud
A cross-retail fraud transaction simply means that an item is bought at one department store, then returned to another for a higher price, and thus creating a net profit for the fraudulent returner. This simply means if a scam artist bought a Fendi handbag at a Neiman Marcus in one city, they’d return it to a different Neiman Marcus at a different location that will accept the return with a higher price tag. Designer scam artists often use this method to avoid being caught in numerous return transactions at a single department, supposedly making it harder for investigators at the retailers to track their conniving conduct.
4. Open-box Return Fraud
Open-box return fraud is a type of policy abuse where the purchaser buys an electronic and returns it opened, with the intent to rebuy it as an ‘open-box’ electronic with a lower price. This would be an easy way to a Mac for hundreds of dollars cheaper than usual. All open-box electronics are more inexpensive than those with the original manufacturer’s packaging and this type is most similar to price switching.
5. Wardrobing Fraud (wear it and return it)
Mass media has often portrayed wardrobing fraud in their plotlines for youth entertainment. The story will typically go like this: a late-twenties protagonist has a high-class party to attend and rent due in a week, but they use their rent money for an ensemble only to return it later with the tags still attached. Often, with wardrobing, the purchasers may not get their money back if it has obvious signs of wear like sweat stains, food droppings, and the like. Some folks may even try to get it dry-cleaned before returning.
Even without scam artists creating costs for fraudulent transactions, policy-adhered returns still create a large cost for merchandisers. In 2021, all return transactions cost merchants approximately $761 billion. For each $1 billion spent on merchandise, consumers return about $166 million worth of products. For each $100 re-absorbed by a retailer in returned merchandiser, about $10.30 consists of fraudulently returned products (Emarketer). Nordstrom has been financially tanked by its liberal return policies with a total of $2 billion in fraudulent returns out of the total of return transactions (Yahoo).