Policy abuse

Promo abuse attracts low value customers & damages pricing integrity

You might be wasting your marketing budget on attracting customers that will never pay full price. And since no customer wants to pay full price if others get the same for less, this can damage your pricing integrity and revenue over time.

Brand identity & customer retention are at risk

Promo abuse damages brand identity. If a genuine customer can’t redeem a voucher that’s already been used fraudulently, they’ll lose trust in your brand. You might have to fork out for more discounts or freebies to compensate.

Promo abuse increases cost of acquisition

The more promos abused, the higher the cost of acquisition. This can have a significant impact on your margins, and in some cases, profitability.

How do reselling schemes impact your business?

Promo abuse can result in reselling - a fraud grey area. You might think "a sale is a sale"m but reselling can cause massive brand erosion and decrease your business value.

It’s hard to monitor and track costs

Promo abuse doesn’t result in a chargeback, so there’s no obvious tracking metric. This means the costs are hidden and the problem often goes unseen. And because of the sheer volume of promos (especially discount codes), fraudulent activity can easily get lost.

You don’t want to lose good customers!

The goal is to keep your customers and discourage bad behavior. It’s a difficult line to tread, so many businesses would rather just accept the cost of abuse than risk losing good customers.

Generosity is important

You don’t want to look mean, which can easily happen if your brand comes down too harshly on opportunistic customers. And there can be a moral consideration:

Sign-up promo abuse

It’s easy for customers to abuse sign-up promos. All they have to do is create a new email address and account, and they can get the deal or free-gift more than once. This popular tactic is called multi-accounting, and left unchecked it can be a financial drain.

For example, if a food box subscription offers a "first box free" incentive, they risk giving away a fortune in free ingredients. Customers can simply cancel their subscription after receiving the free goods, and do it again.

Voucher abuse

Vouchers are easy to use, so they’re easy to abuse. Customers can make multiple new email accounts to use a voucher over and over. Or, if your codes are too simple, they can guess future codes and receive multiple discounts. Other customers can’t redeem codes that have already been used fraudulently, so you risk upsetting valuable customers and losing future sales.

If video game seller sends customers a one-time discount code for 20% off in-game spend, tech-minded gamers could easily find a way to take advantage. If they could use that promo for every new character or unlocked level, profits would suffer.

Referral bonus abuse

Referral schemes can be a great way to attract new business and engage existing customers. But they are easy to abuse. A customer can create multiple new email addresses and refer themselves instead of their friends to amass benefits.

Imagine that a ride-sharing app sends out a new offer: invite a friend and get $5 in future ride credit for you and a buddy! In the wrong hands, this offer could lose you a lot of future revenue.

Organized fraudsters can make a living from promo fraud. How does it happen? Here are a couple of examples...

So what is refund abuse and how is it different to promotion abuse?

Who is the refund abuser?

Refund abuse (like promo abuse) is mainly carried out by genuine customers. Refund abusers are rarely malicious, and may not even realise they are doing anything wrong.

Refund abuse occurs when a customer uses the returns policy of a merchant so much that it becomes unprofitable. Customers may also abuse refunds by faking returns/receipts, or reselling merchandise.

Refund abuse is also known as ‘returns abuse,’ as ‘refund’ and ‘return’ can be interchangeable.

Refund abuse and promotion abuse are both growing threats that involve genuine customers exploiting loopholes in your terms. The difference is: refund abuse involves refunds, promotion abuse involves promotions.

Are you giving your products or services away for free?

You can often lose the value of your product through refund abuse. Either you don’t get it back or have to pay to recondition and restock it. You often can’t resell at all - retailers throw away over 25% of returned items on average, hugely impacting your bottom line.

Operational and fulfillment costs can add up

For merchants there’s no such thing as ‘free returns.’ Shipping can be very expensive. Amazon and Walmart actually started telling customers to keep certain unwanted items to save on shipping costs!

Don’t forget the cost of investigation

Refund abuse is a growing issue, putting pressure on fraud teams to review returns more stringently. Without the right automated tools, this could waste your fraud team’s valuable time and other fraud attacks could slip through the net.

Wrongly denying refunds will deter customers

If you deny a well-meaning customer a refund, it’s likely you’ll lose their business for good. Research shows that 92% of shoppers will only buy from you again if the returns process was easy, so the risk of churn is high.

It’s difficult to react at the point of purchase

Refund abuse is almost impossible to spot at the time of purchase - a customer doesn’t add something to their basket with a note ‘I’ll probably return this!’ This makes it hard to catch before you’ve lost out.

How can you balance managing abuse and disputes?

If you deny a customer’s refund, they might go down the friendly fraud route, and you don’t want that! Every chargeback comes with a fee from $20 to $100, and a high chargeback rate can lead up to a $10,000 fine.

It’s hard to monitor costs

Refunds are more popular than ever. You may be so overwhelmed with processing returns that monitoring refund abuse isn’t a priority. And it’s not like there’s an easy metric - you can’t just look at the chargeback rate.

You don't want to lose good customers

Finding the right response to refund abuse is tough. The last thing you want to do is block or lose good customers. Many businesses would rather just turn a blind eye to the costs.

“It never arrived!”

False claims of “it never arrived”’ (aka. DNA/did not arrive) is the most common form of refund abuse. Customers might also say their parcel was damaged in transit or arrived faulty. Once they’ve got their refund or replacement, they can resell the extra goods.

Free-renting or wardrobing

Free-renting or wardrobing happens when a customer returns something after using it, like wearing a new dress to a wedding (keeping the tags on) and returning it after the event. UK fashion retailer ASOS was hit so badly they started trawling social media to blacklist onetime wearers.

Fake returns

Customers can fake a return by sending back a used, faulty, counterfeit, cheap or even empty parcel. Apple once accepted a return for an iPhone that was actually a carefully weighed potato!

The refund/promo abuse crossover

Refund and promo abuse can happen at the same time. Customers fill their baskets to qualify for free shipping or gifts, and return the unwanted stuff later. They might even resell free gifts for a profit.

How is refund abuse different from refund fraud?

Refund abuse and refund fraud are not the same. Refund fraud is organized, often supported by fraudulent reselling networks. Refund fraudsters can make a business out of exploiting returns policies.

Sophisticated refund fraud is now an industry. Here are a couple of methods from organized refund fraudsters...

Organized fake return schemes

Refund fraudsters can get smart with fake returns. The dry ice technique is a good example, as it can give the illusion of parcel theft during shipping. Dry ice is heavy when the return is picked up, but the contents evaporate before they get to the warehouse. The merchant can’t disprove the claim so will likely send a refund.

Refund fraud as a service

Refund fraud as a service happens when professional fraudsters offer discounts to genuine customers online and make it happen by exploiting your returns.

You might see an offer online for 30% off the latest PS5. The customer orders the PS5 at full-price on a genuine site, and the refund fraudster uses a tried-and-tested method to secure a refund. The customer gets the deal they were promised and the fraudster walks away with 70% of the money.

Contactless delivery causes refund abuse to slip through the net

Doorstep deliveries became standard during lockdowns to keep staff and customers at a safe distance. But new processes make it harder to confirm a successful delivery, so customers can easily claim a parcel never arrived.

Complex returns networks

‘Buy, pick up, and return anywhere’ systems are now widespread. Retail giant ASOS has return drop-offs in over 47,000 locations in the UK. Whilst these are convenient services, their networks are so vast that returns become hard to track.

Delivery staff shortages

Covid-19 illness and social distancing created staff shortages that impact supply chains. The UK’s NHS app "pingdemic" caused over 600,000 delivery workers to isolate. Operational strains make it easier for dodgy returns to go unchecked.

Extended returns periods

Many online merchants drastically extended return periods to account for Covid delivery delays and to let customers ‘try before you buy.’ Long return periods give customers an opportunity to serially return or free-rent items.

Set limits that make sense for your business

Set a threshold for an "acceptable" number of promos or returns used over a period of time. If a customer exceeds the limit, you can send a warning email to discourage the behavior. If you notice a prolific refund or promo fraudster, it’s best to tag and block them.

Increase friction temporarily to discourage bad behaviour

Temporarily ban customers from promos or returns if they hit the abuse threshold. You can lift the ban after a period of time (a month or so), and if they reform, you keep a good customer. You can also increase friction for promo abusers by asking for email or phone verifications.

Customer policy best practices

Make your policies, product descriptions and delivery times clear. A lot of avoidable refunds come from customers arguing that the description doesn’t match the product. And get proof of delivery - drivers can take a photo of the delivered item. This can tackle the item-not-arrived refund abuse.

Communicate with other teams

It can be hard to communicate the importance of stopping refund and promo abuse. Sales and marketing teams don’t want to hear that their shiny new promo is more trouble than it’s worth!

Here’s how other fraud professionals improved business-wide awareness:

• Educate other teams on fraud and abuse risks. Help them understand that protecting your business from abuse actually boosts profits!

• If you don’t have the tools in place to identify abuse in your own business, use industry data to show the costs and risks.

• Find ways to monitor and control exposure before it’s too late.

For more information on how to mitigate the risk of promotion or refund abuse, talk to the team.