Why is refund abuse at an all-time high?

This article is from 2020. For an up-to-date breakdown of refund abuse, please consider reading our more recent post, "Refund abuse: Why is it on the rise and how do we stop it?"

Covid-19 created a wave of unprecedented challenges for businesses across the globe. But with lockdowns and social distancing, ecommerce boomed. At the height of UK restrictions, online retail orders skyrocketed by up to 200%. And customers have adapted to shopping online for good.

While online business is still soaring, so is refund abuse – and 53% of merchants are seeing an increase. Once seen as an accepted cost of doing business, refund abuse has become too pervasive to ignore.

What is refund abuse?

Refund abuse definitions can be confusing: Is a customer trying to game refund terms and conditions to their advantage, or are they just trying to find the perfect pair of jeans?

Refund abuse (sometimes also called returns abuse, though that focuses on the return itself rather than a refund request) occurs when a customer uses the returns policy of a merchant so much that it becomes unprofitable. Customers may also abuse refunds by faking returns/receipts, or reselling merchandise. Mainly carried out by genuine customers pushing their luck, refund abuse is not strictly considered to be fraud, and chargebacks are not involved - nonetheless, it is a problem.

Why is there a spike in refund abuse now?

The impact of Covid-19 on shopping conditions

The global pandemic meant online businesses had to scale up delivery services to cope with demand, offering incredibly generous refunds policies. It’s a savvy move as 83% of shoppers say they will only buy from brands with return policies they like. But easier returns policies create more opportunities for refund abuse.

Contactless delivery

Since the start of the pandemic, doorstep deliveries have become essential, keeping staff and customers at a safe distance. But the success of these deliveries are often hard to confirm, and customers can say they never received the goods (even though they did) to claim a refund.

Huge returns chains

"Buy, pick up, and return anywhere" systems have become standard. Retail giant ASOS has return drop-offs in over 47,000 locations in the UK. Whilst these are convenient services, their networks are so vast that returns become hard to track.

Refund abusers can further take advantage by returning low-cost fakes instead of genuine merchandise. Apple once accepted a return for an iPhone that was actually a carefully weighed potato.

Extended returns periods

Many online merchants extended returns periods drastically to account for covid-delivery delays and to mimic the ‘try before you buy’ in-store experience. Long return periods tempt customers to bulk buy and serially return...

Social media and the serial returner

Wardrobing

A new wave of serial returners are "wardrobing" on Instagram. Customers buy new outfits to wear once, take a selfie, and return the clothes soon after. ASOS was hit so badly by this behaviour they took to trawling the internet to spot one-time wearers, blacklisting the thrifty fashionistas.

Since over a quarter of returned inventory cannot be easily resold, and there’s no such thing as ‘free’ delivery for merchants, the costs are huge.

Viral refund hacks

Refund abuse has gone viral, as customers brag about their money saving life-hacks on social media. US marketplace Wish.com was marked as an easy target on reddit, and one TikTok user spread the news, posting a refund-method video that now has over 9,000 views.

Why would genuine customers abuse refunds?

Most refund abusers are not malicious, they are just opportunistic. Here’s why genuine customers keep abusing returns...

• Entitlement: customers feel entitled to refunds and don’t think about the costs.
• The Robin Hood effect: they think big corporations can afford to bear the costs forgetting that the current climate has seen many businesses shut for good.
• No consequences: customers know that they probably won’t be prosecuted.

Why might merchants be more lenient?

Refund abuse is difficult to stop. Whilst stricter return policies would prevent abuse, they could deter customers. Many merchants can’t afford to risk it, especially if they are in an expansion phase. Plus, you can’t treat all badly-behaved customers like fraudsters - not all of them deserve to be blocked.

Learn more about refund abuse

It’s a constant balance between creating frictionless customer service and protecting your business. Read our recent fraud and payments survey to learn more about refund abuse and find statistics on recent fraud trends across industries.