Policy abuse FAQs

Policy abuse refers to a customer not using a merchant’s policy for what was intended and even deliberately manipulating a merchant’s policy for personal gain.

Policy abuse is a unique problem for merchants to tackle because, unlike traditional fraud, it can be committed by people who are otherwise good customers. In most cases, it requires no special skills or access to stolen credentials or accounts. However, sophisticated serial abusers may be career criminals who specialize in refund-related fraud, carrying out ‘item not received’ (INR), empty box, and other shipping-related scams, and resellers circumventing merchants’ product-limit policies.

Policy abuse can be defined on a merchant-by-merchant basis, particularly once policy abusers cross a certain threshold. Examples of policy abuse can be a customer submitting a fraudulent claim, return, multi-item purchase (exceeding a store limit), or even coupon reuse.

At Riskified, we help our merchants stop the abuse with Policy Protect. By using advanced machine learning and entity clustering capabilities to block abusers in real-time, Riskified is simultaneously able to reduce friction for legitimate customers who have earned their perks.

The return fraud scam, fake tracking ID (FTID), is where fraudsters alter the return tracking ID of the postage label so a returned good shows it was delivered back to the retailer’s return center, and the customer receives a refund. Bad actors attempt this scheme in one of two ways:

Method one involves unlinking the package or the order from the customer. This prevents the return center from tracking down the customer who made the fraudulent return. At the same time, the package shows as delivered, entitling the customer to a refund.

Method two, the more common type of FTID, involves modifying the delivery address on the package. The package is delivered to an unrelated location, where an unsuspecting person throws out the junk package. The delivery tracking shows the package as delivered to the return center, entitling the customer to a refund.

This type of fraud entails returning empty boxes or boxes filled with paper, rocks, or cheaper items instead of the original merchandise. Abusers use various methods to get around the merchant, including claiming they were not responsible for the switch or deliberately messing with the shipping address so the package is hard to identify or does not reach the correct warehouse.

To prevent return fraud, businesses should focus on a multi-faceted approach involving technology, data, policy analysis, and dedicated resources. Having strong company alignment around stopping policy abuse is critical. Ensure adequate resources are focused on combating policy abuse, such as a specialized team for monitoring returns and analyzing customer data, and strong coordination and data sharing among relevant departments.

Invest in automation and identity intelligence solutions to swiftly identify and address fraudulent and abusive returns. In tandem, strive for increased data transparency, providing detailed customer information like past purchase and return history to better detect suspicious activity. Lastly, take the time to analyze existing return policies to identify and close any loopholes that customers might exploit for fraudulent purposes.

Return fraud occurs when fraudsters exploit return policies – whether by returning items for reasons that are not legitimate, or by returning used or damaged items as if they were new. Refund fraud is another term that encompasses several types of activities in which someone aims to receive a refund or reimbursement without returning an item. In other words, when a customer attempts to receive a refund that they are not entitled to.

According to research from Opinium and Cebr, commissioned by Riskified, returns, refunds, and exchanges cost retailers $394 billion in key ecommerce markets. And more than a quarter of those returns are abusive or fraudulent, creating significant costs and customer experience dilemmas for merchants.

The phantom pain of policy abuse creates additional strain. Merchants think that $28.4 billion, or 7%, of the cost of returns and refunds is potentially fraudulent or abusive. For returns alone, tabulated to cost at least $196 billion for retailers, the impact of abuse bumps up to 9.6% or $19 billion. However, calculating the true price of managing returns, refunds, and exchanges is nearly impossible.

Return fraud can include wardrobing, when a person buys clothing or other fashion goods with the intent to wear them multiple times and return them. Another example might be switch fraud, which involves buying a product you already own and returning the worn version. For more return fraud tactics, find a comprehensive list here.

Common examples include submitting fraudulent return or refund claims, wardrobing, switch fraud, coupon reuse, and multi-item purchases that exceed a store’s set limits.

According to research commissioned by Riskified, returns, refunds, and exchanges cost retailers $394 billion across key ecommerce markets, with more than a quarter of those returns being abusive or fraudulent.

Riskified offers Policy Protect, a solution that uses advanced machine learning and advanced identity clustering to block abusers in real time while reducing friction for legitimate customers.