For every type of fraud, there is a season. Gift card fraud, for example, rises around Mother’s Day, Valentine’s Day, and Christmas. Ecommerce fraud teams face a holiday hangover of chargebacks after the end-of-year gift-giving season. And policy abuse — including refund and returns, reseller, as well as promo and coupon fraud — tends to surge in summer. Until now, the reason for that summer uptick has remained a mystery.

Merchants reported the summertime rise in fraudulent returns, misuse of promotion codes and discounts, and other types of policy abuse in recent research, Policy abuse and its impact on merchants: Global benchmarks 2023. In the study, nearly 70% of merchants surveyed identified a significant rise in policy abuse during the summer shopping season, outranking even the December holidays. But the rationale was not clear. What was driving this unusual pattern of policy abuse, and what can merchants do to address it? 

Cook-outs, flip-flops, and friendly fraud

Policy abuse causes merchants significant financial losses. At the same time, generous policies are important to retaining good customers, especially during highly competitive shopping seasons. To get the balance right, you need to understand the sources of abuse to calibrate an effective and appropriate response. 

It turns out this is particularly important during the summer season, because while professional policy abusers are a year-round concern for merchants, new consumer research shows a steep (~2x) summertime rise in friendly fraud and “casual” policy abuse like couponing and wardrobing.* 

That means that even more than other times of the year, merchants must walk a fine line between stopping abuse and alienating errant but otherwise lucrative customers.

“Daylight spending time”: What research says about the summer surge in policy abuse

According to a 2019 study from MassMutual, more than half of all Americans (52%) spend more money in the summer than they do during cooler parts of the year, corroborating what merchants experience as reported in Policy abuse and its impact on merchants. 

The new research study, performed by independent research firm Sapio, looked at consumer behavior and motivations around policy abuse. Researchers surveyed 2,000 consumers across the United Kingdom and United States who were either committing or would consider committing policy abuse.*

The research confirmed what merchants were already observing: that summer is the most likely season for people to engage in policy abuse, with rates nearly double those of the winter season.

Why does policy abuse rise in summer?

The 2019 MassMutual study found that people spend more in the summer because they want to make the most of summer, or in other words, they experience FOMO. 

In the forthcoming research from Sapio, consumers reported the top reasons for committing policy abuse in the summer include: 

  • They buy more in the summer overall 
  • They want to pay less for summer activities and purchases 

These individuals may be buying seasonal items they don’t really want to keep — such as a specialized tool for a summer project or an outfit for a special event. And for some, there’s simply more time in the summer months to engage in abusive behaviors.

The majority of these summer fraud perpetrators are not hardened abusers who make a living off the profits of their scams. They appear to be otherwise average customers who want to buy more but spend less in the summertime. In fact, the majority admit to feeling guilty about their actions, whereas the kinds of professional fraudsters who are vocal on the dark web show great pride in their schemes.

This creates a challenge for merchants, who must make a careful cost/benefit analysis
before taking action on these cases. 

Summer fraud calls for selective friction 

Merchants with a selective approach can minimize losses during the summertime without losing otherwise good customers or eliminating the generous policies good customers expect.

Retailers need to be on the lookout for an uptick in minor offenses like wardrobing during the summer and put a holistic identity-focused strategy in place to make case-by-case decisions on these offenses. 

To get this holistic picture, merchants can use data from throughout the customer journey, including order management systems, return merchandise authorization systems, customer service ticketing systems, and CRM platforms. With a detailed picture of each purchaser, merchants can adjust the level of friction in a way that preserves a positive experience for desirable customers, discourages friendly fraud, and blocks the worst offenders

The key to finessing summer policy fraud abuse is to avoid a black-and-white, rules-based decisioning and establish a tiered approach — one built on accurate identity resolution and variable-friction journeys. 

Find out more about how policy abuse is affecting merchants in Policy abuse and its impact on merchants: Global benchmarks 2023, and stay tuned for the release of new research about consumers and their policy abuse behaviors.  

*Riskified will be releasing the full international pulse study on consumer behaviors and attitudes about policy fraud abuse in summer 2024. Sign up for our newsletter to make sure you receive it.