If you run a business with an ecommerce component, you’ve encountered buyer fraud at some point.
Buyer fraud online has grown at an alarming rate over the past few years. Here are some sobering statistics from a 2017 report on the topic.
- Online shopping fraud increased 30% in 2017, a more significant increase than ecommerce sales.
- Ecommerce fraud grew by 45% in 2017. This cost retailers almost $58 billion.
- ID theft is on the rise, which has also cost consumers over $16 billion in 2017.
- Credit card chargeback rates increase almost 20% annually, accounting for just under $7 billion in lost revenue in the form of merchandise, fees, and sales.
As you can see, buyer fraud is a huge issue. Ecommerce sellers are losing billions of dollars a year to these scams, and that number is on the rise as retailers struggle to keep up with the crooks.
It seems unlikely that we’ll ever completely solve the problem of buyer fraud online, but today we’ll show you the four most common types of fraud and highlight some ways you can combat them.
1. Product Was Not Delivered
One of the most common types of buyer fraud is an old classic updated for the Internet age: the product was not delivered.
This one has been around since the days of mail order, and the scam remains unchanged because it’s effective.
In this type of fraud, the buyer will purchase an item, then later claim they never received the product they purchased even though they did.
In most cases, the company will either refund the retail price or send a second item. Either way, the scammer comes out ahead. They either get the product for free (with the sale price refunded), or they get two of the product.
Both of these scenarios are bad for your business. They’re also terrible for customers who have legitimate “I didn’t get my item” cases; as this form of fraud is so common many businesses look at any of these claims with suspicion from the start.
The good news is that there are now a number of ways to protect yourself from these kinds of fraudulent claims. Taking precautionary steps can prevent these problems from happening in the first place.
The most common solution here is to ship items with delivery tracking. This way, you’ll know where the package is from the time it leaves your warehouse or shipping center until it reaches your customer’s door.
Delivery tracking can mean an extra charge in some instances, so make sure you factor that into your shipping costs.
For pricier items, you can even request a signature when the package arrives. This can be less convenient because the customer has to be home to receive the item, but it protects you from some big losses.
This form of buyer fraud doesn’t look to be going away any time soon, so it’s in your best interest to protect your business by making sure you’re tracking packages. If you’re a large business with high volume shipping, inventory management software can help you keep things organized and in order.
2. Return Abuse
Our second fraud example is another one that’s been around for decades: return abuse.
Return abuse is often categorized as “friendly fraud,” but if you’re a business owner. there’s nothing friendly about the impact it can have on your bottom line.
The most common form of return abuse occurs in the retail clothing industry. People will purchase outfits to return them after wearing them to an event. Often referred to as “wardrobing” or “free renting,” this practice can move beyond clothing into other retail areas as well.
Other forms of return abuse include:
- Returning stolen merchandise for refunds
- Finding receipts of someone else’s purchase
- Taking the item on the receipt off the shelf in a store
- Returning it as if it were a purchased item.
As you can see, there are a lot of variations here. This makes combatting return fraud more challenging. There’s no one size fits all solution for all the different types of abuse companies will face.
There are some general guidelines you can follow in terms of updating your return process, though.
- Close return policy loopholes
- Track purchases and returns to spot scammers
- Set clear return windows (30 days or less)
- Require receipts for all returns
- Consider adding restocking fees for high-end products
Preventing return abuse can be a challenging endeavor, but the efforts are worth it. This category of buyer fraud costs retailers exorbitant amounts of money each year, which isn’t likely to change soon.
3. Item Not as Described
In the modern online ecommerce landscape, the “item not delivered” scam has gotten heavy competition from the “item not as described” scam.
This scam is trickier to combat than the item not delivered variant, and it can still negatively impact your bottom line.
How this scam works is a buyer will purchase an item, and when they receive it, they will file a complaint that the item wasn’t as the seller described it.
Like the item not delivered scam, sometimes the seller will refund the money (and not request a return of the item to avoid losing more revenue on the sale).Sometimes they will send a replacement (again, without requesting a return of the original product).
Even when the seller does request a return, the scammer will often remove key items from the original packaging to make it so the item isn’t as described. In all cases, you’re hit with a chargeback.
Beyond that, proving this is has happened is where the challenge lies for sellers in this scam.
Sellers on eBay, Amazon marketplace and similar sites see this type of buyer fraud often. The upside for these sellers is that they have a certain amount of protection through the sites.
Retail ecommerce sellers don’t have the same protection level, but can take some steps to minimize their exposure to this type of fraud.
The most common step is to take photos of the items before shipping. This way, there’s a photographic record of the item’s condition as it leaves your control.
If you’re a large retailer, taking photos isn’t feasible, but you can track the quality of items as you receive them from shippers and suppliers. This way, you can compare the product in a claim against the batch you purchased from the supplier as proof that the materials were in good condition when you received them.
Neither solution here is foolproof, highlighting how challenging it is to combat the “item not as described” scam. In many cases, it’s a “your word versus their word” situation. You may wind up taking the loss on the item, but be sure to track the situation so you’re not fleeced by this buyer again.
4. Identifying Bad Buyers
In a perfect world, these bad actors would get caught and branded with a scarlet S for “scammer”. This would make it far easier for businesses to avoid buyer fraud, but we don’t live in a perfect world.
If you’re selling on eBay or the various online marketplaces, these sites have buyer and seller feedback tools. These tools allow you to see if sellers or buyers have a good reputation based on how their previous transactions have played out.
When interacting with buyers on these sites, it pays to do your research. Buyers with high ratings and a large volume of feedback are generally going to be reputable.
This doesn’t mean you should automatically flee from buyers with a low volume of feedback. Everyone starts at zero on these sites, so having less than ten ratings from sellers isn’t an automatic red flag.
As part of your research, read the feedback that’s included. If a buyer has recurring complaints about shipping or items not as described, this is something to take into consideration.
The feedback system isn’t without its challenges (many times, sellers don’t leave feedback for buyers, for example). Still, the feature does provide a real tool for sellers to gauge if the person purchasing their products is a legitimate customer or a headache waiting to happen.
Do your research and protect yourself.
Ecommerce is big business, and it will only get bigger as people become more accustomed to making purchases online instead of in brick-and-mortar stores.
The Internet is a genuine game-changer for buyers, who now have access to more products, better pricing, and countless other benefits they don’t get when shopping at local retail shops.
The downside is that this faceless purchasing makes it easier than ever for less scrupulous buyers to defraud sellers. As we mentioned in the open, buyer fraud costs sellers billions of dollars a year, and that number is only set to increase as technology comes up with new ways to beat the system.
Some of these scams have been around for ages, while others are a product of our modern digital world. Regardless, these scams cost companies money, and that cost is then passed on to legitimate customers in the form of increased retail prices.
Not every return is a case of fraud or a nefarious scheme. The postal service does lose packages. Things get damaged in transit. There can be misunderstandings over product descriptions. People buy things and change their minds (particularly online, where we lose the ability to hold and touch things before making a purchase).
As sellers, we must work to find a way to prevent fraud while also providing great customer service and allowing our customers to buy things with the confidence that they can return them without hassle if they’re not right.
Striking that balance is the challenge retailers face. Being aware that buyer fraud exists, recognizing the most common forms it takes and coming up with plans that make it more difficult for scammers to abuse your return system can protect you and your customers.
The key takeaway here is to be vigilant. The scammers are always working on new schemes. Your business needs to stay alert to avoid falling victim to them.
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