Organized Crime’s Latest Scheme: Return And Refund Fraud

Criminals are prepping to reap ill-gotten gains this holiday season, and one way they’re doing that is by bringing their organizational skills to return and refund schemes. That’s the word from Signifyd Inc., a fraud-prevention services provider.

Return and refund fraud is one of three trends gaining prominence now, says Ping Li, head of risk operations at San Jose, Calif.-based Signifyd. The always-problematic account takeovers compose the second trend and buy online, pickup in store or curbside is the third. Li says fraudsters will just drive around and pick up items. “We are definitely seeing concentrated areas where they target,” Li says.

Organized criminals are devoting more resources to return and refund fraud, something that typically had been done by individuals trying to get refunds while retaining the purchased item. In some scenarios, frustrated consumers seek online and in social-media groups those who can help them with returns, Li says. For whatever reason, the consumer can’t send the return through normal channels, she says.

Many retailer return and refund policies immediately refund the consumer once a shipping label is generated, prior to receiving the returned goods. In instances where criminals are involved, the consumer receives the refund, but the legitimate goods never arrive, Li says. “What’s intriguing about this is this always has happened before as individuals,” she says. “But now, organized crime is advertising this type of service.” The fraudsters know how to beat retailer systems, she says. 

Such schemes are getting noticed. “I’ve definitely been hearing about an uptick in those schemes from merchants as well—I think it’s … organized crime, but I’m also hearing from many merchants about an acceleration of first-party fraud (which always happens during times of recession),” says Julie Conroy, research director at Boston-based Aite Group LLC., in an email message.

Merchants have a variety of ways to counter this fraud, Li says. One is to revisit return policies. That may mean adjusting when to issue the refund, such as when the returned goods are received instead of prior, she says. The customer experience must be accounted for, too. The retailer may tie the timing of refunds to the value of the goods, perhaps sooner for lower-value items than for higher-priced ones.

Another essential step is to monitor return and refund volumes more closely. “If you see an anomaly you want to investigate,” Li says.

It may be a well-worn refrain, but increased vigilance is vital to combating online fraud. “Because more and more consumers are now going online and more and more businesses are going online, by itself [that] will definitely attract fraudsters and more innovation from fraudsters,” Li says. “The new fraud behaviors will continue to evolve.”