New Research Shows Consumers Pay the Price of Policy Abuse Epidemic As Retailers Worldwide Tighten Return and Refund Policies

Rhea-AI Summary

Riskified's new research reveals a significant shift in ecommerce return and refund policies due to increasing fraud and policy abuse. The study, covering seven major markets, shows that returns, refunds, and exchanges cost retailers $394 billion, with at least $28 billion impacted by fraud and abuse. 84% of merchants find abuse harder to detect, driven by Dark Web 'fraud-as-a-service' groups and malicious GenAI tools.

As a result, retailers are tightening their policies: one-third now charge return fees, another third offer exchange-only or store credit-only policies, and two in five allow just seven days to file claims. However, only 30% of merchants have implemented strategies to prevent fraudulent returns and refunds. Riskified (NYSE:RSKD) suggests adopting identity-based technology approaches to balance customer experience with fraud prevention.

Positive

• Riskified's research provides valuable insights into the ecommerce fraud and policy abuse landscape
• The company offers solutions to help merchants balance customer experience with fraud prevention
• Riskified was named to CNBC's World's Top Fintech Companies in 2024

Negative

• Increasing fraud and policy abuse in ecommerce is costing retailers billions
• 84% of merchants find abuse harder to detect, potentially impacting Riskified's market
• Only 30% of merchants have implemented strategies to prevent fraudulent returns and refunds, indicating a potential challenge for Riskified's market penetration

Insights

E-commerce Fraud Analyst

This research highlights a significant shift in e-commerce return policies, driven by the growing challenge of policy abuse. The $394 billion expense for retailers, with $28 billion attributed to fraud and abuse, underscores the magnitude of the issue. The tightening of return policies, such as charging fees and shortening claim periods, reflects retailers' attempts to mitigate losses.

However, this approach may backfire. Stricter policies could alienate legitimate customers, potentially impacting customer loyalty and lifetime value. The report suggests a more nuanced strategy using identity-based technology to differentiate between high-value customers and potential abusers. This approach could help retailers maintain generous policies for valuable customers while preventing abuse.

For Riskified (NYSE:RSKD), this research positions them well in the market. As a provider of fraud and risk intelligence solutions, they stand to benefit from the increased focus on policy abuse prevention. Their emphasis on identity-based approaches aligns with the report's recommendations, potentially driving demand for their services in the e-commerce sector.

Market Research Analyst

This report reveals a critical trend in e-commerce that investors should note. The shift towards stricter return policies indicates a broader industry challenge that could reshape consumer behavior and retailer strategies. Key findings include:

• 84% of merchants finding abuse harder to detect
• One-third of retailers now charging return fees
• Two in five retailers allowing only 7 days for claims

These changes could significantly impact customer satisfaction and loyalty, potentially affecting sales and market share for e-commerce businesses. However, it also presents opportunities for companies offering sophisticated fraud detection and prevention solutions.

For Riskified, this market shift could drive growth as more retailers seek advanced tools to combat policy abuse. The company's AI-powered platform and focus on identity-based insights position it well to capitalize on this trend. Investors should monitor how Riskified leverages this market opportunity and whether it translates into increased adoption of their services and, consequently, revenue growth.

New research reveals the era of generous return and refund policies is over - 84% of merchants find abuse harder to detect, driven by new Dark Web “Robin Hoods” and GenAI

NEW YORK--(BUSINESS WIRE)-- Riskified (NYSE:RSKD), a leader in ecommerce fraud and risk intelligence, today published its “Returns, refunds & exchanges: Global insights and policy playbook 2024,” a thorough examination of returns and refunds operations at ecommerce enterprises worldwide and the impact of fraud and abuse on retailer policies. The study of seven major markets, including US, UK, France, DACH, Mexico, Brazil, and Australia / New Zealand, uncovered that returns, refunds, and exchanges constitute a staggering $394 billion expense for retailers, at least $28 billion of which is perceived to be impacted by fraud and abuse.

Policy abuse, in which consumers knowingly exploit or manipulate a merchant’s terms and conditions for personal gain, includes behaviors such as ordering multiple sizes and colors with the intent to return most items (“bracketing”), claiming “item not received” (INR) or “did not arrive” (DNR), returning an item as if unworn for full refund (“wardrobing”), and more.

Not only are regular consumers committing abuse, professional fraudsters are magnifying the challenge. Driven by information-sharing forums like “fraud-as-a-service" groups on the Dark Web and the availability of malicious generative artificial intelligence (GenAI) tools, fraud and abuse have become more prolific and sophisticated. Because of this, three in four online merchants say they feel overwhelmed by policy abuse, while 84% find it harder to detect abuse of their returns and refund policies.

Now, Riskified’s research reveals that many merchants are tightening up returns and refunds policies due to mounting costs and the high risk of fraud and policy abuse, a reversal from the generous and flexible policies online shoppers have come to expect and appreciate from their favorite retailers.

• One-third of retailers now charge a fee for returning an item.
• One-third of retailers are issuing exchange-only and store credit-only policies.
• Two in five online retailers now allow just seven days to file a claim. In contrast, brick-and-mortar stores have historically provided 30 days for returns, refunds, and exchanges.

Most merchants aren’t proactively tackling policy abuse, with only three of 10 merchants saying they have implemented a strategy to prevent fraudulent returns and refunds. Internal challenges contribute to this situation, such as lack of data integration between teams (26%), competing objectives between teams (25%), and lack of collaboration in general (24%). To alleviate this problem, merchants can adopt strategies such as a “sliding scale” return and refund policies based on customer value, using an identity-based technology approach to identify bad actors, or even banning serial refund and returns customers entirely.

“The pendulum has swung from generous return and refund policies of previous years to increasingly restrictive policies,” said Jeff Otto, CMO at Riskified. “Merchants are under pressure to cut costs, but if this correction is applied bluntly across all customers it creates a bad experience for high-value shoppers, stunting growth and loyalty. The good news is this problem can be addressed surgically with an identity-based technology approach that carefully assesses the right policy to implement across the spectrum of customers – maintaining generous policies to delight high-value customers, while cutting-off abusive identities at the point of purchase or claim.”

To produce this report, Riskified commissioned Opinium Research to interview over 500 senior directors with oversight of fraud, risk, and policy abuse at large ecommerce businesses spanning North and South America, Europe, and Australasia. In addition, the Center for Economics and Business Research (Cebr) layered economic modeling data and analysis to determine the direct and indirect costs of fraud and policy abuse on returns, refunds, and exchanges. Download “Returns, refunds & exchanges: Global insights and policy playbook 2024” via Riskified.com.

About Riskified

Riskified (NYSE:RSKD) empowers businesses to unleash ecommerce growth by outsmarting risk. Many of the world’s biggest brands and publicly traded companies selling online rely on Riskified for guaranteed protection against chargebacks, to fight fraud and policy abuse at scale, and to improve customer retention. Developed and managed by the largest team of ecommerce risk analysts, data scientists and researchers, Riskified’s AI-powered fraud and risk intelligence platform analyzes the individual behind each interaction to provide real-time decisions and robust identity-based insights. Riskified was named to CNBC's World’s Top Fintech Companies in 2024. Learn more at riskified.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241009450520/en/

Cristina Dinozo

Sr. Director of Communications

press@riskified.com

Chett Mandel

Head of Investor Relations

ir@riskified.com

Source: Riskified

FAQ

What is the total cost of returns, refunds, and exchanges for retailers according to Riskified's research?

According to Riskified's research, returns, refunds, and exchanges constitute a $394 billion expense for retailers worldwide, with at least $28 billion impacted by fraud and abuse.

How are retailers changing their return and refund policies in response to fraud and abuse?

Retailers are tightening their policies: one-third now charge return fees, another third offer exchange-only or store credit-only policies, and two in five allow just seven days to file claims, compared to the historical 30-day window for brick-and-mortar stores.

What percentage of merchants find it harder to detect abuse of their returns and refund policies?

According to Riskified's research, 84% of merchants find it harder to detect abuse of their returns and refund policies.

What solution does Riskified (NYSE:RSKD) suggest for merchants to address policy abuse?

Riskified suggests adopting an identity-based technology approach to identify bad actors and implement a 'sliding scale' return and refund policy based on customer value, balancing customer experience with fraud prevention.