Experts share 5 return & refund abuse prevention strategies (from the stage of RavCon)

Once upon a time online, CNP fraud was fraudsters’ main area of focus. Yet, in recent years, refund abuse has risen as a contender for the biggest headache around for online merchants.

Read on to discover the refund abuse prevention strategies and advice of four brilliant fraud prevention experts:

• Grant Shipway from River Island,

• Richard Brown from Superdry,

• Adam Sherlock from Fitflop

• and Daniele Thillmann from Daniele Thillmann Consulting.

They boast experience across diverse sectors of online activity, including mass retail, payments, gaming, insurance and finance for companies selling across the world.

And they’ve seen it all – from 95% return rates to discounted guides to committing fraud, and cries of “No, you didn’t send us trainers. You sent us a pigeon”!

What can they teach us about stopping refund abuse? How can you protect your profits, your customers’ experience, and brand loyalty?

Setting the scene

Refund abuse continues to rise, with 54% of merchants Ravelin surveyed saying it increased in the past year.

Social media and the dark web alike are full of guides and tips on how to successfully defraud companies, while many openly celebrate their achievements, perhaps removing the stigma once associated with this type of activity.

We have even seen refund abuse fraud-as-a-service on offer to consumers – where a professional criminal helps everyday people get a malicious refund in exchange for a cut of the money.

And it certainly takes a toll:

• Losses to fraudulent refunds cut into revenues and profits

• False positives can damage customer loyalty

• Too stringent returns and refunds policies impact the shopping experience of good customers

• Social media exposure for victim companies can damage brand image

• Overall, business growth can take a toll as well

5 refund abuse prevention strategies from 4 fraud fighters

On the stage of RavCon, Daniele Thillmann, Adam Sherlock, Richard Brown and Grant Shipway went deep into the issue of refund abuse – and had a lot to say.

We’ve identified five key takeaways:

1. Realize that not all refunds (or refund abusers) are made equal

2. Know how to quantify and qualify

3. Use nudges and warnings in addition to bans

4. Don’t forget your good customers

5. Collaboration leads to positive change

Scroll on to find out more about each.

Prefer to watch? Here’s the full recording of the merchant panel, titled “Out of control? Refund abuse trends & solutions" from Ravelin’s RavCon 24.

1. Realize that not all refunds (or refund abusers) are made equal

“There’s a scale of obviously legitimate customers asking for a refund. Then there’s opportunists. Then, you come to professionals – those, you want to stop,” explains Daniele Thillmann.

The approach to professionals is obvious: blocking them outright and potentially banning them from trying again. Same goes for good customers – you allow them to shop uninterrupted, wherever possible.

Opportunists, however, are a gray area. These are first-party customers transacting using their real identities rather than professional criminals, who have found an opportunity to take something they are not owed from your company. They are a type of malicious “friendly” fraudster rather than online criminals.

“There’s the opportunistic people who utilize their consumer rights, trading standards, etc, using it all against the merchant,” adds Richard Brown.

Accurately gauging whether a refund request comes from a first-party opportunist or a third-party pro fraudster can make or break your refund abuse prevention.

And you can break down these categories further. You will want to group your refund abusers into categories, in order to better tackle each.

2. Know how to quantify and qualify

Daniele says, “You can’t really fix what you don’t understand”.

Establish a baseline through analyzing your historical returns rates. When working at Matches Fashion, Daniele conducted thorough analysis by market, country, consumer loyalty level, and more.

What you’re looking for is a way to “separate legitimate use cases and legitimate customers, and then opportunists, and then the opportunists from professionals”, as Grant Shipway notes. Track the patterns of known cases of all three – including your legitimate customers.

What is normal for your company? What is spiking? Are there any peak periods after which refunds might increase? How about individual countries, categories and markets?

For example, Richard says, "Different markets have different returns rates. Germany is a high-returning country so we expect to see high return rates for those countries and anything above that for another market is bound to raise some red flags.”

You will also want to invest in a way to keep track of customers’ individual refund and returns rates.

Refund abuse prevention is all about reliable customer intelligence: The deeper the understanding you gain, the better you will get at catching outliers and malicious behavior.

3. Nudges and warnings can be better than outright bans

For customers who are known to not be professional fraudsters but seem to be dipping their toe in opportunistic abuse, consider nudges and warnings as an attempt to rehabilitate them back into acting honestly.

Some of the experts spoke about sending email nudges to customers who have exceeded carefully calculated refund thresholds.

“We’d send a very nice warning email to say, ‘Hey, we’ve noticed you’ve returned a lot of things, is there anything we can help you with?’ – not in any way accusing people but just to say we are watching your returns and maybe you might not want to do that,” recounts Daniele.

If things didn’t change, there was a second, slightly more firm, email, expressing that “Maybe we’re not the right retailer for you”. Eventually that would lead to account closure for those with very high returns – individual return rates as high as 95% were mentioned in the panel.

On the other hand, Fitflop’s Adam Sherlock chose a “more draconian” strategy, to use his own description, of banning right away. This is not always an avenue open to fraud managers due to competing business priorities, even when there is little doubt of abuse.

There are different ways to warn and nudge customers who are suspected of stepping out of line to stop attempting refund abuse. These include popups, sharing with them fewer promotions, less exposure to marketing communications, adding account warnings, email communications, and more.

Richard spoke about an experiment they did a few years ago, where problematic consumers were sent fewer marketing materials in order to be less likely to buy – and therefore to attempt to return illegitimately.

Not all experiments are going to be successful, but it’s worth keeping an open mind, reading up on the art of nudging, speaking to stakeholders, and considering your options.

4. Don’t forget about your good customers

Keeping a close eye on your good customers is a great way not just to lower refund abuse but also to increase customer satisfaction – and the fraud team can play a key role in this.

Some of your legitimate shoppers might have very good reasons to have a high return rate. And you certainly don’t want to offend your VIP customers.

For instance, high-value luxury fashion retailers receive a lot of orders from stylists and personal shoppers. These should certainly be excluded from banning or even “nudging” as explained above.

As fraud experts, we tend to focus on risk and fraudulent behavior. Mapping out ways for the fraud team to support a pleasant shopping and returns journey for good customers can also help you achieve buy-in from across the company.

By keeping a close eye on the behavior patterns of good customers we can prevent false positives and can actually improve loyalty and customer satisfaction, minimizing shopping friction and returns friction alike for VIP shoppers.

Try to not be absolute in your assessment of what constitutes abuse. Don’t go for blanket one-size-fits-all solutions. Automation can help, but this would be an application more suitable to explainable machine learning to provide insights, data and recommendations, rather than a rule that expects all of one type of request to be illegitimate.

6. Close collaboration can affect positive change

Refund abusers tend to huddle online, work together and eagerly exchange information. Fraud managers would be wise to do the same, whether collaborating across teams or externally.

Grant says, “Cross-department collaboration! I don’t believe that customer fraud can be tackled in any way without working with other teams. Customer service are probably the bedrock of this.”

Think outside the box, and take advantage of the expertise of your colleagues across teams to increase the accuracy of your refund abuse prevention strategy and deliver better results.

For example, a direct line of communication between customer service and the fraud team will enable them to keep you up to speed with any products that recently proved defective, which you might be receiving more refund requests on, as Adam explains.

Even when working separately to the fraud team, data analysts and scientists can also prove invaluable. Daniele was approached by the data team at Matches, who had built a dashboard for each item that also included rate of returns. This proved extremely useful to refund abuse prevention in addition to its original use.

Externally, Adam highlights how useful a reliable delivery partner can be, for instance. If they conduct thorough investigations into claims of items not received and demonstrate a proactive attitude, they are a keeper.

Of course, we cannot understate the importance of data, especially data-driven platforms to support reporting and risk mitigation – from merchandise dashboards created internally to refund abuse prevention solutions.

Parting thoughts

The four experts had much more to say about refund abuse prevention strategies on the stage of RavCon, including practical advice, metrics to keep track of, and more stories from the frontlines.

You can watch the full 45-minute discussion here.

In any case, remember the five tips above. Reach out to stakeholders internally and externally, use data to quantify and qualify your problem, get creative with nudges and warnings, remember that not all refunds are equal, and don’t forget to make the life of good customers easier.

These steps will set you up for success, no matter the extent of the issue.

If you’re looking for a sophisticated solution against refund abuse, consider speaking to one of Ravelin’s team about your needs.

Further reading

• Refunds vs chargebacks: Why you need to know the difference

• Webinar: How to manage refund abuse with Trainline

• Webinar: Refund abuse: How can online merchants fight back?

• Friendly fraud trends: Brazen consumer attitudes to fraud revealed in Ravelin’s Consumer Fraud Survey

• Ravelin developer docs: Refund abuse integration

• Refund abuse: Why is it on the rise and how do we stop it?

• Ravelin’s Refund Abuse product page