What is refund fraud, and why is it a growing threat to companies that ship goods or accept returns?
You may know e-commerce refund fraud by a few names. But whether you call it refund fraud, shipping fraud, or cargo loss, it’s a big problem for any company that ships goods or accepts returns. Essentially, e-commerce refund fraud happens when bad actors — and, in some cases, known customers — exploit gaps in logistics or fulfillment processes to get goods for free.
When digital adoption accelerated beyond expectation in 2020, new merchants entered the e-commerce space with little digital fraud protection, making their businesses prime targets for refund fraud. As e-commerce evolves and merchants maintain flexible policies, they’ll continue to experience these issues.
What types of refund fraud exist in the market, and how can companies proactively protect against them?
Some of the most common refund schemes involve bad actors claiming that items shipped but never arrived or that packages arrived empty or missing items. In more complex schemes, bad actors may offer refund services to customers who want to keep items but get their money back. The best way for businesses to protect themselves is to implement a robust, customizable digital fraud solution to analyze identity elements like shipping addresses, payment tokens, and email addresses.
Bad actors or known customers associated with a higher-than-average number of refunds or disputes may be flagged or declined in the future. After that, businesses should keep their support personnel trained on the many ways a customer or bad actor might try to engineer their way into a refund.
I understand Kount recently surveyed consumers about returns; how do return/refund trends vary by age group?
In 2020, we wanted to learn more about the prevalence of refunds and returns during peak seasons like the holidays. So, as part of our consumer survey, we asked how comfortable they were with taking advantage of lax policies.
39% said they’re comfortable returning something they’ve worn or used, even if it wasn’t defective. And 36% of consumers said they typically return five or more items for refunds after the holidays.
When we dove a little deeper into the data, we found that consumers in certain age groups were more or less likely to return five or more items during the holidays. At the highest percentage, 56% of consumers aged 35 to 44 return five or more items. At the lowest percentage, 24% of consumers aged 55 to 65 return five or more items. Consumers aged 18 to 24, 25 to 34, and 45 to 54 fell between.
What steps are you taking at Kount to help companies harden security and mitigate refund fraud risk?
Kount is at the forefront of digital enablement and fraud prevention technology. Our advanced AI and machine learning capabilities help businesses save significantly on fraud costs. But we also understand that an issue like refund fraud isn’t just happening in a digital space. So we’ve started consulting and professional management services to not only help businesses get started with a digital fraud solution but bring their fraud and customer service personnel up to speed on all the latest trends and tactics.
How can companies train customer service and logistics personnel to recognize warning signs of potential refund fraud?
Bad actors know that the more aggressive they are with customer service, the more likely they will get a refund. And because refund fraud is the easiest to get away with in packing and shipping, it’s important to educate customer service and logistics personnel on fraud.
Merchants and business owners will need to help all personnel understand the signs of this type of fraud. In particular, train workers to flag communications for manager review that use social engineering. For example, if a customer is missing critical information about an online purchase (receipt, order number, etc.), they might be bad actors out for monetary gain. In some cases, they may become overly aggressive or threatening or attempt to appeal to a rep’s better nature with a sob story.
How can service providers help educate merchants and consumers about refund fraud?
The adage is absolutely true: an ounce of prevention is worth a pound of cure. Implementing digital fraud across their merchant portfolio is the best course of action for service providers. But they can also educate their merchants and customers about the importance of clear, accessible refund policies and telltale signs of social engineering. It’s essential to remember that not all customer service reps have a fraud mindset. But knowing typical signs of fraud can help every employee recognize refund abuse in action.
How is refund fraud evolving, and how are you helping clients, partners, and their customers stay ahead of fraudsters?
As e-commerce evolves, fraud schemes will follow suit. Unfortunately, fraudsters are getting smarter and more challenging to detect every passing year. Together, Kount and Equifax are committed to transforming digital enablement and consumer insights.
We’re helping our customers better identify who they’re working with, assess fraud and other risks, and engage in ways that deter fraudsters without adding friction for good customers. We intend to shift the focus from device- and transaction-level protection to holistic protection that combines digital and physical identity elements that create a true, 360-degree customer persona.
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Chief Revenue Officer, Kount, an Equifax Company
With more than a decade of proven success in driving market share and business growth efforts within the complex software technology space, Jared brings a combined wealth of domain knowledge, sales and marketing expertise, and executive acumen that will help lead Kount, an Equifax Company, into the future.
Jared joined Kount after an accomplished tenure at Global Payments and its OpenEdge division where he established foundational, ground-up marketing, business development, and sales initiatives for a business that operated across 60+ industry verticals. He was also instrumental in reshaping the company’s merger and acquisition strategy, championing new product and solution launches, cultivating strategic partnerships, and guiding efforts that resulted in a successful expansion into international markets.
Jared holds an MBA from the Duke University Fuque School of Business and a Bachelor of Science degree from Elon University.