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How Companies Can Prevent Retail Policy Abuse

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Amid economic uncertainty, consumers are adjusting shopping habits accordingly. This reduction in spending, however, is not the only obstacle retailers must contend with in the coming months. The looming downturn is projected to spark an uptick in “greyscale fraud,” specifically retail policy abuse.

To navigate a challenging economic period, retailers looking to appeal to consumers might offer coupons, discounts, lenient return policies, frictionless refunds or other incentives that make them vulnerable to exploitation.

For retailers operating in a digitally enabled environment, preventing policy abuse requires an awareness of both policy vulnerabilities and consumer motivations. Retailers that understand who commits policy abuse and how are well-equipped to reassess tools and policy design to protect every dollar of their revenue. 

What is Policy Abuse?

In an uncertain economic environment with consumers spending less on shopping, it makes sense for retailers to offer deals and discounts in an attempt to retain customers and remain competitive. However, there is a subset of consumers that may take advantage of this strategy by committing policy abuse. 

Policy abuse takes many forms, but the following methods are among the most common:

Return Abuse: Occurs when customers exploit merchandise return policies. This includes returning worn or damaged goods, falsely claiming that a product was defective to qualify for free return shipping, or falsely claiming that a product was damaged in shipping and other tactics.

Coupon or Promotion Abuse: Refers to customers using promotional offers in excess of their intended use. For instance, they might take advantage of a promotion rewarding new customers by signing up from various email accounts.

Reseller or Limit Abuse: Occurs when a buyer uses deceptive practices to purchase large quantities of a product, typically one that is in limited supply, with intent to resell the product at a profit. 

Item Not Received (INR) Abuse: Refers to a buyer falsely claiming a refund for a product that was not delivered.  INR abuse is like first-party payment card fraud (often called “friendly” fraud) but does not involve a chargeback.

INR abuse can also happen on top of a customer filing an “Item Not Received” chargeback with their credit card company to try to double their refund. 

Online shopping offers offenders a degree of anonymity that makes policy abuse easier to commit, when compared to shopping in a physical store. For retailers, tracking instances of policy abuse is complicated by the ability for consumers to open multiple email accounts, a lack of visibility into third-party delivery services and a host of other factors. 

Who Commits Policy Abuse? 

One factor that makes policy abuse difficult to track? For the most part, it’s not committed by cybercriminals, but by a retailer’s actual customers. The practice is very common. Indeed, 45% of consumers surveyed by Riskified admitted to exploiting merchant policies. 

Since offenders can be found at both ends of the socioeconomic spectrum, lack of funds does not seem to be a key motive. It seems that consumers often commit policy abuse because they can and the majority of policy abuse offenders are young.

In fact, Riskified found that 65% of respondents that admitted to abusing merchant policies are ages 18 to 29 and 51% are in the 30 to 44 age bracket. Young consumers who grew up using the Internet might be more aware of and adept at exploiting policy loopholes inherent in the online shopping experience.

Interestingly, just under half 49% of consumers who exploited merchant policies felt guilty about doing so. Lack of remorse may stem from lack of clarity surrounding what constitutes policy abuse. For this reason, retailers should keep in mind that customers who commit policy abuse are not necessarily “bad” customers.

Only 39% recognize their actions as fraudulent or abusive. Other offenders see their actions as justified, with 14% feeling they are entitled to benefits because of a poor customer service experience. Finally, 31% of young consumers said they would likely continue to exploit merchant policies in the future.

How to Tackle Policy Abuse

Retailers looking to prevent policy abuse will want to prioritize sophisticated solutions that provide protections and insights without infringing on the customer experience.

Advanced technology can help retailers unmask data manipulation and fake accounts and access a holistic view of the customer’s behavior across account creation, return requests, missing package claims, and other aspects of the customer journey. Insights into customer behavior can help retailers leverage data to uncover abuse patterns and trends, allowing them to identify when policies are being abused and by whom. Retailers can use this information to revise policies in a way that closes loopholes while still supporting positive customer interactions.

Amid the uncertain economic climate, retailers will want to offer promotions and lenient return policies that create and encourage repeat customers without setting themselves up as an easy mark for policy abuse.

Retailers that educate themselves on policy abuse tactics, implement sophisticated technology and effectively apply insights to policy creation are well-positioned to survive—and even thrive— through economic hardship. 

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