Voice of the Industry

Why refund and promo abuse are the biggest threats to online marketplaces right now

Thursday 18 November 2021 07:25 CET | Editor: Anda Kania | Voice of the industry

Refund abuse and promo abuse are two major threats facing online marketplaces now. As part of our peak season series, Mairtin O’Riada, co-founder and CIO at Ravelin, outlines what these threats are, while explaining what online marketplaces can do to mitigate them

The growth of online marketplaces during the pandemic was staggering. While people were confined to their homes in various lockdowns around the world, ecommerce ballooned with US consumers alone set to spend around USD 933.30 billion in 2021 — up to 18% compared to last year.

One of the significant winners of the ecommerce boom was online marketplaces, where third-party buyers connect with sellers normally through an app. Food delivery companies, online goods companies and other types of online marketplaces hit all-time revenue highs, representing a total proportion of 62% of all online retail sales in 2020, growing at twice the rate as ecommerce overall.

But while online marketplaces have succeeded, so too has fraud within this particular segment. According to Ravelin’s Online Marketplaces report, 52% of companies have noticed an increase in refund and promo abuse activity over the past year. Unfortunately, as a relatively young but fast-growing industry, online marketplaces are ripe targets for promo and refund abuse. Expansion is a priority, and competition is tough. Every new app has to offer the best deals and easiest refunds. But what are these costs and why should online marketplaces care? And what can they do about it?

The cost of promo abuse

Often underestimated as a threat, promo abuse involves customers taking advantage of offers, for example, sign-up bonuses, referral discounts and voucher codes – often leading to eye-watering hidden costs for the business.

Our research found that 52% of all online marketplaces saw a noticeable increase in promo abuse this year. However, it’s the taxi and food verticals that are seeing the biggest rise in this type of abuse, affecting 57%, with almost a quarter noticing a significant increase.

Uber famously experienced one determined user who racked up  GBP 50,000 in future ride credits by posting a referral code on Reddit. The costs of promo abuse are often hard to track, but since anyone with a smart device looking for savings can easily take advantage – that’s when the numbers can quickly add up.

To refund or not to refund?

Refund abuse (also known as returns abuse) occurs when a customer uses the returns policy of a merchant so much that it becomes unprofitable. According to Shopify, businesses lose more than USD 18 billion a year when people return stolen items, claim an item never arrived, or use the item and return it later.

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, but it is a problem.

Half of marketplaces noticed a rise in refund abuse in the past year, as the pandemic drove many customers to extend returns periods and offer contactless delivery. It became harder to track successful deliveries, so customers could easily say an order never arrived (even though it did). Refunds are so easy on food apps that customers can try their luck on every order – if they claim their food was cold when it wasn’t, how can you prove it?

Businesses are faced with the decision to make return policies stricter, but this might scare off customers. But if your refunds are too easy, refund abuse can get out of control – it’s a difficult balance to strike. Online marketplaces need to discourage serial refunding but keep good customers.

How to prevent these types of abuses

With the right tools in place, you can uncover your promo and refund abuse problem and put a stop to it.

Network analysis is a technique you can use to assess and evaluate connections between data. This is much easier and faster when the data is shown in a graph network, which helps make suspicious connections and patterns clear.

You can also look at suppliers in the network to spot connections between suppliers and customers. For example, if multiple customer accounts are connected by one supplier device, it’s a good indicator of opportunistic behaviour.

In a graph database, all the information about a customer’s account, email, shipping address, order details and payment information is connected and visible at the same time. You can see every order each customer has ever made on the site, how they’ve paid and where they’ve had them shipped. There are no limits on adding nodes and edges, such as the device used for the transaction, additional payment methods, shipping addresses and more.

Once you have all the data in front of you, you can sort through grey areas and separate the policy abusers you want to keep, from the ones you should block.

Even though this activity is not strictly fraud, it’s important that merchants can stay in control, otherwise, the cost of running promotional schemes may end up being wasted on people who are already users, instead of attracting new customers.

About Mairtin O'Riada

Mairtin O’Riada is the co-founder and chief intelligence officer at Ravelin. He started Ravelin alongside co-founder Martin Sweeney after working together at ride-hailing app Hailo (now FREE NOW) fighting fraud and protecting revenue. Prior to that, Mairtin worked for Scotland Yard and The Metropolitan Police providing intelligence on Chinese organised crime, extremism, post-conflict resolution, live kidnapping, bank robberies and hostage situations before moving to the Caribbean support covert anti-corruption units. He believes that fixing corruption fixes everything.

About Ravelin

Ravelin provides technology and support to help online businesses prevent evolving fraud threats and accept payments with confidence. Combining machine-learning and graph network visualisation, Ravelin helps businesses draw deeper insights from their customer data to detect fraud, account takeover and promotion abuse and increase payment acceptance.


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Keywords: fraud prevention, ecommerce, marketplace, refund fraud
Categories: Securing Transactions | Digital Identity, Security & Online Fraud
Countries: World
This article is part of category

Securing Transactions