Voice of the Industry

Have we created a monster?

Wednesday 22 May 2024 10:23 CET | Editor: Irina Ionescu | Voice of the industry

Dajana Gajic-Fisic, VP of Fraud Strategy for The Wolfe Companies LLC, Founding Member of The House of Fraud, and fraud specialist with over two decades of experience tackles the many types of ecommerce refund fraud and how it affects companies’ revenues and legitimacy.


In the fast-paced world of ecommerce, businesses are faced with a growing challenge – the rise of refund fraud. This malicious practice, where customers exploit return policies to obtain items for free, can have a significant impact on a company's bottom line. As online shopping continues to surge, understanding the nuances of refund fraud and developing effective countermeasures has become essential for retail businesses to protect their profits and maintain customer trust.


Monster of our own making

Refund fraud is not a new phenomenon, but it has become the fastest growing threat facing retailers in the digital age. As ecommerce continues to surge, merchants are now losing three times more revenue to fraudulent refund requests than they do to credit card fraud. This alarming trend has become a monster of our own making, as the ease of exploiting return policies and the difficulty in monitoring and tracking these losses have led many businesses to write them off as a mere ‘cost of doing business’.

The insidious nature of refund fraud lies in its ability to fly under the radar. Unlike credit card fraud, which is more easily detected and addressed, refund fraud often slips through the cracks, leaving retailers to absorb the financial hit. This lack of visibility has allowed the problem to escalate, with fraudsters becoming increasingly sophisticated in their tactics and exploiting the very systems designed to provide a positive customer experience.

The truth is out there

The sheer scale of the refund fraud problem facing retailers is staggering. According to the National Retail Federation (NRF) and Apris Retail Report, the total value of returned merchandise in 2024 is projected to reach a staggering USD 743 billion. Even more alarming is the fact that 13.7% of those returns are a result of abuse and fraud, amounting to a staggering USD 101 billion in lost value for retailers.

The data paints a clear picture – while most returns are legitimate, the proportion of fraudulent activity is alarmingly high, posing a significant threat to the profitability and financial well-being of retailers. As the ecommerce landscape continues to evolve, it is crucial for businesses to address this issue head-on, developing robust strategies to identify and mitigate the impact of refund fraud.

Refund fraud vs. refund abuse

Refund fraud

Refund fraud occurs when an individual intentionally obtains a refund or replacement for a product they already possess, with the goal of keeping the item without paying. This malicious practice exploits a retailer's return policies, allowing fraudsters to take advantage of the system for personal gain. Refund fraud can have a significant impact on a business's bottom line, as these illicit activities cut into profits and erode customer trust.


Refund abuse

Refund abuse, as well as as return abuse, happens when a customer excessively uses a merchant's return/refund policy in an unprofitable manner. This could involve repeatedly returning items, often with little justification, to the point where it becomes detrimental to the retailer's financial performance. While refund abuse is not necessarily a criminal act, it can still pose a challenge for businesses, as they try to balance providing a positive customer experience with protecting their profits.

Distinguishing between the two

The key difference between refund fraud and refund abuse lies in the customer's intent. Refund fraud involves a deliberate, malicious attempt to defraud the retailer, often using tactics like identity theft or fake personas. Refund abuse, on the other hand, is more of a gray area, where customers may be exploiting return policies, but not necessarily with criminal intent. Retailers must develop strategies to effectively identify and address both scenarios to safeguard their financial well-being.

Risk or cost of doing business

Monetary loss

Refund fraud can result in significant monetary losses for retailers. When customers successfully obtain refunds for items they never purchased or have already used, it directly cuts into a business's bottom line. This financial impact can be substantial, eroding profits and making it difficult for retailers to sustain their operations.


Reputational loss

The negative impact of refund fraud extends beyond just financial losses. When customers engage in fraudulent activities, it can damage a retailer's reputation and undermine trust in the brand. This reputational harm can be difficult to quantify but can lead to decreased customer loyalty, reduced sales, and even lasting damage to a company's image.


Unpredictable and reactive

Refund fraud is a challenging issue because it is often difficult to predict and prevent. Retailers may struggle to implement proactive measures without causing undue friction for their legitimate customers, leading them to react to fraudulent activities after the fact. This reactive approach can be both time-consuming and costly, making it difficult for businesses to stay ahead of the curve.


Strict policies and chargebacks

To combat refund fraud, some retailers may adopt strict return and refund policies. While these measures can help deter fraudulent activities, they can also create challenges for honest customers and lead to dropouts in sales. Additionally, chargebacks associated with fraudulent refunds can further exacerbate the financial burden on retailers, making it a significant cost of doing business in the digital age.


Main actors


The landscape of refund fraud is populated by a diverse array of actors, each employing their own unique tactics to exploit the system. On the individual level, there are customers who engage in refund abuse, repeatedly requesting refunds with dubious justifications or even fabricated reasons. These savvy individuals have learned to navigate the gaps in existing retail processes, expertly manipulating return policies to their advantage through practices like double dipping – obtaining refunds for items they already possess.

Organised groups

Compounding the challenge are the organised groups that have emerged, offering refund as a service. These sophisticated operations will file refund claims on a customer's behalf, often charging a hefty fee of up to 15% of the transaction value. Thriving on platforms like Telegram, these groups have proliferated, with hundreds of different organisations catering to the growing demand for fraudulent refund activities. The existence of resources like ‘Bob's Refunding Book’ further demonstrates the extent to which refund fraud has become a well-established and systematised enterprise.

Common types of refund fraud

Refund fraud is committed using various methods. Fraudsters frequently change their tactics to avoid detection. Organisations should prioritise effective tracking and reporting to combat refund fraud.

Here are some common types of refund requests:
  • DNR/INR: Did not receive/Item not received

  • Partial Receipt: Ordered two, received one

  • Boxing an Empty Box: Returning an empty box instead of the actual item

  • Fake Tracking ID: Fraudsters' favourite method

Refund fraud mitigation strategies
  •  Always confirm the item is received by your return centre before issuing a refund

  • Inspect boxes for random items or manipulated labels

  • Track and decline repeat offenders

  • Note everything and note it fast

  • Use affidavits of non-receive

  • Track data of sales, returns, and refunds

  • Monitor the refund rate and compare it to your internal company policy

  • Focus on more than one data point


Refund fraud is a serious issue that affects businesses of all sizes. It is important for organisations to understand the different types of refund fraud, how to identify it, and the steps to prevent and address it. By implementing effective mitigation strategies, the newest and most sophisticated technologies, and closely monitoring refund activities, businesses can reduce the risk of falling victim to refund fraud. Remember, staying vigilant and informed is key to protecting your business and maintaining customer trust.


About Dajana Gajic-Fisic

Dajana Gajic-Fisic is VP of Fraud Strategy for The Wolfe Companies LLC and has been in the fraud industry for over 20 years. Currently, Dajana oversees risk operations and oversees payment security, transactional fraud screening, ATO, policy abuse, and any additional post fulfilment risks to which merchants may be exposed. During her career, Dajana had the opportunity to work with reputable retail brands, as well as financial institutions, including JD Sports, Versace, Hugo Boss, Nars, Shiseido, La Prairie, Puma, The Limited, MCM, Cole Haan, Barclaycard US, and Macy’s CCCS. For having a unique approach towards fraud and successes that followed, Dajana was named by Retail Info Systems the 2019 Industry Pacesetter. In 2020, Dajana’s fraud team has been named Merchant Fraud Team of the year, for the continuous training and support to the fraud fighting community. In 2022, Dajana has been named Titan of Ecommerce, by Riskified, for her vision and contributions to the fraud fighting industry. 

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Keywords: fraud detection, fraud management, online fraud, fraud prevention, refund, refund fraud, ecommerce, chargebacks, Account fraud, account takeover, policy abuse, promo abuse
Categories: Fraud & Financial Crime
Companies: The House of Fraud
Countries: World
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