Study: Retailers Face Over $100B in Annual Losses From Fraudsters Gaming Promos, Returns

Samantha Miller

According to a recent survey conducted by Riskified, leading retailers lose over $100 billion annually due to fraud and abuse of their generous policies.

The study indicated that consumers frequently take advantage of promotions, returns, and refunds for their own benefit, especially around the holidays and during periods of high inflation. To increase sales and customer loyalty, such measures are considered essential by retailers. However, scammers are taking advantage of the situation to eat into already slim margins.

Riskified CEO Eido Gal noted that merchants have begun to take a closer look at this issue over the past two years, particularly as they have become more financially savvy. The company’s services help large retailers avoid becoming victims of fraud.

Gal pointed out that it’s quite simple for dishonest people to pretend they never got something and then demand a refund or exchange. Criminals have learned to take advantage of refund policies since they are easier to abuse than acquiring sensitive financial information.

Over ninety percent of retailers surveyed considered benevolent policies essential to their operations. High prices and falling sales, however, erode margins, necessitating a reassessment in light of widespread misuse.

Conspiracy to Steal from Friends and Family

Using several email addresses to take advantage of new customer promotions is just one example of the “friendly fraud” that is discussed in the research. Although it’s common to write them off as an acquisition expense, widespread abuse can have a devastating effect on a company’s bottom line.

Taking advantage of a first-time customer discount of 35%, one retailer discovered that 4,000 people had registered 137,000 bogus accounts. The annualized losses due to the plan were above $14 million.

Another store lost $3.5 million in a single quarter because scammers used a coupon for 35-50 percent off. The investigation revealed that a handful of employees were responsible for the majority of the mistreatment.

The prevalence and damage of promo code and discount scams are on the rise. In 2022, friendly fraud costs were deemed “very significant” by 55% of merchants polled.

Overstepping the Boundaries of ‘Friendly’ Fraud is on the Rise

Professional con artists are bringing friendly deception to a whole new level. One tactic is to falsely claim they never received a shipment, then ask for a refund so they may resell the goods they stole.

It can be expensive for businesses to investigate each and every claim, so it’s often more cost-effective to simply issue refunds when customers ask for them. But the paper claims that this opens the door to serial abuse.

Botnets are now being used to take advantage of limited-edition product launches for everything from sneakers to concert tickets.

Also See: Meta Platforms Inches Closer to Joining the Trillion-Dollar Club

Confronting a Challenge in Fraud Prevention

The problem for stores is that manual claim reviews are useless against skilled scammers. They’re losing money because criminals are taking advantage of policies meant to increase sales, yet they want to keep those regulations in place anyhow.

The report found that 65 percent of merchants still use manual processes to evaluate most claims. However, this is labor-intensive, costly, and often fails to detect repeat offenders.

“One survey respondent even said they would rather have a customer break into their warehouse and steal an item than order it and return it because their returns process was so long and costly,” the research said.

In its place, the purchase histories of customers at top stores are used to determine who gets free returns and exchanges. Repeat customers can benefit from less stringent restrictions, while possible abusers are subject to more inspection.

Increased account monitoring, automatic fraud screening, and a restocking fee for higher-risk returns are some more ways to deter scammers.

ThredUp’s “Keep for Credit” is only one example of a retailer offering an incentive to cut down on returned items. Customers have the option of receiving store credit rather than a refund.

Finding a happy medium between preventing fraud and improving the consumer experience is difficult. However, industry leaders have demonstrated that policy abuse may be reduced without completely abandoning customer-friendly incentives.

As annual losses from fraud rise to over $100 billion, stopping it must be a top concern. As fraudsters come up with more complex schemes, businesses in the retail industry are racing to implement cutting-edge countermeasures.

Those who are able to limit policy abuse without turning off their clientele will have a significant competitive advantage. However, as once friendly fraud turns hostile, retailers face a steep uphill battle.

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Samantha Miller is a business and finance journalist with over 10 years of experience covering the latest news and trends shaping the corporate landscape. She began her career at The Wall Street Journal, where she reported on major companies and industry developments. Now, Samantha serve as a senior business writer for, profiling influential executives and providing in-depth analysis on business and financial topics.
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