Return policy abuse is on the rise, but existing fraud prevention tools simply weren’t designed with this challenge in mind—until now. Riskified’s Eyal Elazar, Senior Director of Product Marketing, and Joe Gelman, Product Marketing Manager for Policy Protect, offer their expert advice on how retailers can protect their bottom line and realize the true promise of tailored customer experiences.

Why can’t risk models designed to prevent card-not-present (CNP) fraud tackle return policy abuse alone? What makes it such a unique problem?

CNP fraud certainly comes with its own complexities– but compared to return policy abuse, it’s a relatively straightforward and familiar challenge for eCommerce retailers. It operates within well-defined rules, parameters, and procedures between merchants, issuers, and payment providers. Most importantly, “traditional” eCommerce fraud exists on a binary—either the card belongs to the purchaser or doesn’t. 

Policy abuse, on the other hand, exists in a gray area. Perpetrators aren’t limited to typical fraudsters or crime rings—they can also be true paying customers pushing their luck with a re-used coupon or jumping the gun to say they didn’t receive an item. Sometimes it’s the most loyal customers that end up exploiting policies because they feel they’ve earned the privilege. They’re the last people you’d want to block because their lifetime value outweighs the occasional wardrobing or phony item-not-received (INR) claim. But when shoppers abuse policies to the point where they’re weighing down margins without any benefit, merchants need to stop it as soon as possible. 

Another wrinkle is that what qualifies as abuse is very merchant-specific. What one merchant considers way out of bounds may be completely legitimate for another. And even for a specific merchant, there may be little regularity in how policies are upheld, with decisions being made on an ad hoc or consumer-by-consumer basis. Deciding where to draw the line for even one customer is rarely clear-cut. 

How does return policy abuse affect merchants’ abilities to build customer loyalty?

The entire point of offering customer policies is to foster customer loyalty and trust. At the end of the day, that goal justifies the often sizable expense of honoring and maintaining said policies. But merchants must carefully factor in the often rampant consumer abuse of policies (and the outsize costs incurred) when determining their level of generosity. 

If merchants ensured they only offered flexible policies and better perks, like more promos or easier returns, to their good, high-value customers, they’d have much more freedom and budget to devote to rewarding and cultivating true customer loyalty beyond a one-size-fits-all approach. Providing these types of tailored experiences can go a long way toward keeping customers happy and spending.

Aside from the missing merchandise itself, what are the hidden cost drains?

The financial impact of eCommerce return abuse goes beyond lost sales and the cost of goods. Cumbersome reverse logistics result in merchants carrying the burden of additional shipping and internal processing costs for items that need to be restocked and inventoried.

In reality, up to two-thirds of items never make it back onto the shelf, keeping them out of the hands of loyal customers. When an employee goes to retrieve a limited, high-demand good that was “returned” but never actually sent back, merchants get hit with both productivity and revenue losses.

Once a merchant approves one fraudulent return, they open the floodgates for more and more attempts from professional fraudsters and opportunistic customers. And when policy abusers network with each other to share intel on tactics and targeted merchants, customer support and operations teams can be overrun by sudden spikes and organized attacks. 

As inflationary pressures mount, merchants have a lot on their plates. Given all of their current challenges, why should merchants prioritize addressing consumer abuse of policies?

The eCommerce game has become more cutthroat than ever, and merchants have become locked into a policy arms race. Every retailer is under pressure to offer ever more obliging policies with the knowledge that if they don’t, their competitors will. 

The true winners in this situation have been consumers, who’ve grown highly accustomed to extremely generous refunds, returns, rewards, and exclusives. These policies and perks are table stakes, and merchants can’t afford to not offer them. But at the same time, the rapid policy escalation has exposed all kinds of weaknesses and workarounds that consumers can use to their advantage. 

It could be a case of an otherwise good customer telling themselves that it’s okay to wear those jeans a few times before “deciding” they never wanted them in the first place, knowing they can keep the tags on and return for a full refund. Or it could be the work of professional policy abusers systematically hiding behind multiple accounts to cash in on lucrative phony item-not-received claims. These cases on either end of the spectrum are all policy abuse. For merchants, it’s a “damned if you do, damned if you don’t” scenario.

The only way out is to solve the root cause of the problem, which comes down to one fundamental question: Who’s a customer, and who’s not?

What makes Policy Protect different from other solutions on the market?

Policy Protect leverages powerful machine learning clustering technology to reveal the identities behind individual accounts and analyze their behavioral patterns across Riskified’s vast merchant network. The solution automatically delivers optimized policy decisions in real-time to every single order and claim. 

In addition, merchants now have access to Identity Explore, a revolutionary new capability that empowers fraud teams to investigate customer identities, surface deep insights, and take direct action based on what they discover. 

Now, merchants can finally understand who’s an actual customer and who’s simply an abuser hiding behind multiple accounts. With this information, merchants can offer more generous policies to those customers who genuinely deserve them while effortlessly and scalably filtering out unprofitable or untrustworthy identities. 

What success stories have we seen from merchants already using Policy Protect?

Using Policy Protect, many leading retailers have saved millions of dollars blocking eCommerce policy-related abuses. Merchants have been able to prevent 15x more abusive returns and refund claims, detect nearly 95% of unauthorized resellers, and save 70% of their promotion budget by thwarting shoppers from misusing coupons and promo codes.