Retailers are caught in a one-step forward, two-step backward game with fraudsters.
Their latest—and fastest-growing—trick is claims and appeasements, what the National Retail Federation (NRF) calls “friendly fraud.” This occurs when a customer claims an online order was never delivered. Or it was, but it wasn’t as expected or was damaged in transit, prompting the retailer to issue an appeasement or refund.
But not all claims are friendly.
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A new report from the NRF and Appriss Retail found that fraud and abuse within retail returns surged by $20 billion in 2023 compared to the previous year, resulting in a total of $101 billion. Claims and appeasements, in particular, impacted up to 2.5 percent—$35 billion—of online sales.
“There’s no such thing as friendly fraud or abuse. That’s all there is to it,” Pedro Ramos, chief revenue officer at Appriss Retail, told Sourcing Journal. “When it comes to claims and appeasements and returns, it’s this idea that people have become a little too comfortable with filing a return for an online purchase because it’s anonymous, there’s no human interaction.”
And detecting this type of fraud has become “progressively difficult,” the report said, due to the sophisticated methods deployed by the “professional returners” exploiting the anonymity of online platforms. Per a study by Arkose Labs, these cybercriminals can potentially earn up to $600,000 a month by exploiting a few weak spots.
Consider that online sales accounted for nearly 30 percent of total retail sales last year, per the NRF. That growth added to a third of all returns in the form of buy-online-return-in-store (BORIS) transactions. A lot of the items returned in a BORIS transaction, according to Appriss, are later claimed as never having been received, resulting in a “double dip” opportunity for bad actors.
Another exploitable opportunity is chatbots and call centers. It’s easy to dupe someone during an online claim who may not have complete visibility into a shopper’s journey.
“Chatbots have been designed to be very accommodating. Call center associates are very accommodating, very customer centric as well,” Ramos said. “They don’t have the benefit of understanding the customer and in a lot of cases, they don’t see the full customer profile.”
Larger syndicate groups are also running “sophisticated rings” around the claims and appeasement trend, utilizing online forums to swap tips and tricks. Some professional returners even run a service to be hired to execute this fraud, Appriss alleged, with research from Netacea suggesting there are more than 1,600 ads for professional refund services running within known forums like Cracked, Nulled and Sinisterly.
Granted, the most common reasons for claims and appeasements are honest mistakes. Fraudsters account for 10.5 percent of these returns, according to analysis by Appriss, equivalent to up to $3.7 billion. For store associates, it’s challenging to determine what claims are legit.
This is where Appriss believes it can help out.
“Our particular product takes the full consumer into consideration as it makes a decision,” Ramos said. The enterprise software application compiles shopper profile data, historical purchasing behaviors and linked identifying information like loyalty cards and phone numbers. The AI model then reads through a shopper’s entire purchasing journey to flag associates of unusual behavior. “Because we understand the full profile of the consumer, we also understand those that are abusive or outright fraudulent.”
The AI model allegedly treats every return anonymously, resulting in reduced returns by 8.2 percent and a 6.5 percent reduction in claims and appeasement. One national retailer used Appriss’ AI models to realize annual savings of over $3 million by “effectively eliminating fraud and abuse from its claims process,” which revealed that 0.3 percent of shoppers were responsible for $2.5 million in adjustments.
“As e-commerce increases, that’s going to not only increase returns overall, it’s going to continue to increase in-store returns that can lead to arguments between customers and associates,” Ramos said. “The right solution is a solution that sits in the background and authorizes transactions, that’s completely unbiased, and that removes the friction between the consumer and the employee.”
