Policy abuse is overwhelming to three-quarters of merchants today. Abuse and fraud have evolved to become more prolific, sophisticated, and challenging to detect, driven by Dark Web forums, social media (like Instagram and Telegram networks), and malicious AI tools. Meanwhile, many of the ‘good’ shoppers behave in ways that are bad for your business, compounding the problem.
In 2024, Riskified launched a new report focusing on returns, refunds, and their financial impact on merchants. The report ‘Returns, refunds & exchanges: How to stop good customers from paying the price of policy abuse’ investigates consumers’ behaviour, perceptions, and attitudes related to policy abuse in ecommerce.
This report reveals merchants are forcing customers to pay the price of policy abuse, implementing shorter grace periods to make claims, introducing returns and restocking fees, and enforcing tighter inspections and restrictions.
Drawing insights from over 500 senior directors from large ecommerce businesses across the US, UK, France, DACH, Mexico, Brazil, and Australia/New Zealand, the paper aims to bridge the understanding gap between merchants and consumers on fraudulent practices such as return abuse, promo code misuse, and refund fraud.
Policy abuse affects nearly all sectors of online commerce. 75% of all merchants confront with refunds, returns, and exchange abuse, leading to USD 394 billion expense for retailer across key ecommerce markets worldwide. According to the report, 84% of merchants claim it is harder for them to identify fraudulent activity today, as many AI-generated tools intensify the frequency of attacks, while abusers also leverage technologies for their benefit.
Many consumers admitted to committing at least one form of policy abuse, such as falsely claiming an item was not received or misusing a promo code. Notably, some abuse is deliberate, not just incidental or accidental. A Riskified study from 2024 focusing on the UK and the US market claimed that only half of the shoppers feel guilty in abusing merchant policies, while the other half feels entitled on getting the best bang for their buck when shopping online.
Younger consumers are more likely to abuse policies, with Gen Z and millennials being more prone to engage in policy abuse than older age groups.
Additionally, return abuse (e.g., returning used or non-defective products) is more common among younger shoppers. This suggests a generational shift in perceptions around what is considered acceptable behaviour in digital commerce.
The report identifies five major categories of policy abuse:
Return abuse: Returning items that are used, outside of policy, or falsely claimed defective.
Promo code misuse: Exploiting codes beyond intended limits or combining multiple codes.
Refund fraud: Claiming an item never arrived to receive a refund or reshipment.
Item Not Received (INR) claims: Often fraudulent when the item was delivered.
Wardrobing: Buying items with the intention of using them once and returning them.
The cumulative effect of policy abuse is significant. The report estimates that retailers lose billions annually to fraudulent or abusive claims, but exact figures vary by sector. The challenge is compounded by the difficulty of disputing many types of abuse without risking customer alienation. According to merchants, more than USD 28 billion or the equivalent of 7% of the cost of returns and refunds are potentially abusive of fraudulent although a more in-depth analysis performed by Riskified mentions that this figure could be as high as 20%.
The most impacted sectors by the cost of returns are electronics, retail, fashion and luxury goods, payments, home and outdoor, tickets and travel, and food and grocery.
‘Historically, flexibility at all costs was the top priority when implementing returns and refund policies. Now, the cost has become too high […]’ – this statement not only acknowledges the magnitude of the problem but also provides clear directions that merchants must impose extra layers of friction and adjust laxed return policies to diminish the costs associated with fraud.
In response to rising abuse, merchants are investing in:
AI and machine learning tools to detect fraud patterns
Tighter return policies
Customer segmentation to assess abuse risk
The findings suggest that policy abuse is not just a fringe problem — it is a widespread and, often enough, a deliberate behaviour. The fact that younger consumers are leading in policy abuse points to a long-term challenge for ecommerce platforms. Merchants must prepare for an evolving landscape where abuse patterns shift along demographic and behavioral lines.
One of the most striking tensions highlighted in the report is between enforcing policies and maintaining strong customer relationships. Automation and smarter fraud detection tools can help, but the risk of alienating good customers remains high. Retailers are at a business crossroad, where they must find innovative ways to reward honest shoppers’ behaviour while penalising abuse discreetly.
Many consumers genuinely don’t understand when they cross the line into abusive behaviour or the consequences they will ultimately have to pay by doing so. Clear, transparent communication around policies, combined with incentives for following them, could reduce unintentional abuse. Education campaigns and better in-cart disclosures may help close the perception gap.
The world of return, refund, and exchange fraud
Effective fraud prevention strategies
How to enforce your policies while keeping your customers happy
Irina is a Senior Editor at The Paypers, specialising in fraud and online payments. Leveraging her Ph. D. in Economics and a strong economic academic background, she constantly observes new developments in tech, innovation, and regulation, educating the audience about trends in fraud prevention, chargebacks, scams, social engineering, digital identity, GenAI, and ecommerce. You can reach out to her via LinkedIn or email at irina@thepaypers.com.
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 analyses the individual behind each interaction to provide real-time decisions and robust identity-based insights. Learn more at riskified.com.
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