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The Holidays are Over: Roll in Refund Fraud Season

The holiday season is behind us, and for e-commerce companies, that means one thing: Refund season has started. Many refunds will be legitimate, as honest customers exchange well-meant gifts for the items, cash or credit they actually want.

Others will come in the form of complaints and demands for compensation — the item never arrived, was broken, was not as described and so on. Unfortunately, a large number of these will be fraudulent — as we’ll discuss below, likely more than ever before — and e-commerce businesses will be footing the bill.

The Pandemic Effect

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While porch piracy is a real problem and of course, some items are delivered defective or are not what the customer ordered, false claims have been increasing this year. One study found that by October 2020, false claims that an item had not been received had risen by 67% compared to October 2019.

It makes a sad kind of sense. According to a report by the Associate of Certified Fraud Examiners, about 80% of these professionals believe fraud levels rise in times of economic distress, and 2020 placed all kinds of stresses on almost everyone. Many consumers are now in a far more precarious financial position. Yet people still expect to be able to afford items that would have been well within reach a year ago.

It’s not hard to imagine that this frustration would be exacerbated by the holiday season. A survey found that near the end of 2020, “more than a third of consumers in both the United States and the United Kingdom admitted to filing false claims in order to get e-commerce orders for free,” compared to 8.1% in January 2020, before the pandemic’s impact hit.

COVID Makes Refund Fraud Easier

Motivation and external factors aside, the pandemic also makes the practical side of refund fraud easier than before. There are three elements here.

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Firstly, online shopping has exploded, with many companies struggling to keep up with the flood of new business. That gives fraudsters an edge. Plus since refund fraud requires different departments to work together and share information, it’s hard to catch.

Secondly, there are new delivery vulnerabilities. Many people are, understandably, not willing to open the door or sign for packages. Some can’t if they are in quarantine or shielding. Many delivery policies now accommodate this. That’s excellent for good customers, but also means there’s no proof of delivery.

Thirdly, there are now extra weaknesses in the returns process itself. Many companies have restructured their returns processes to streamline things this year — and in many cases, that means no box or shipping label is needed. Some merchants don’t even want goods returned, because of the virus. Again, great for good customers, but great for fraudulent refunders, too.

The New Danger: Professional Refund Fraud Takes Off

- Digital Partner -

The other big change this year is that professional refund fraud has taken a leap into the mainstream. Fraudsters specializing in refund fraud have been around for the last six or seven years, but 2020 saw the trend explode as the pandemic both encouraged merchants to ease their policies and drove consumers online. Many customers have more time to fill and less money available for legitimate purchases…   Forbes

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