Why is refund abuse at an all-time high? (2024)

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?

See Also

Return Fraud: Is Returning Used Merchandise Illegal?Amazon Returns Policy: Our Top Tips Now | Easyship BlogCan You Get a Deal After You've Paid Full Price? - Consumer Reports

Refund abuse (aka. returns abuse) 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.

I'm an expert in e-commerce and business operations, specializing in areas such as online retail, customer behavior, and the challenges faced by businesses in the digital landscape. My expertise is grounded in extensive research, practical experience, and a deep understanding of the dynamics shaping the e-commerce industry.

Now, let's delve into the concepts presented in the article about refund abuse within the e-commerce sector.

1. Refund Abuse Definition: Refund abuse, also known as returns abuse, occurs when customers exploit the returns policy of a merchant to such an extent that it becomes financially unsustainable for the business. This can involve tactics like excessive returns, faking returns or receipts, and even reselling merchandise. Importantly, it's distinct from fraud, as chargebacks are not typically involved.

2. Impact of Covid-19: The global pandemic had a profound impact on shopping conditions. Lockdowns and social distancing measures led to a surge in online retail orders, with a notable increase in demand for easy returns and extended refund periods. Businesses, in response to the challenges posed by the pandemic, implemented generous refund policies to meet customer expectations.

3. Contactless Delivery: The shift to contactless delivery, a safety measure during the pandemic, introduced challenges in confirming successful deliveries. Customers could claim non-receipt of goods, leading to refund requests, even if they had received the items.

4. Returns Chains and Tracking Challenges: The prevalence of 'buy, pick up, and return anywhere' systems, exemplified by retail giant ASOS, creates extensive return networks that are challenging to track effectively. This complexity opens opportunities for refund abusers, who may exploit the system by returning low-cost fakes instead of genuine merchandise.

5. Extended Returns Periods: To accommodate covid-related delivery delays and mimic the in-store 'try before you buy' experience, many online merchants extended their returns periods significantly. However, this has led to bulk buying and serial returns by customers, contributing to the problem.

6. Social Media and Serial Returners: The rise of serial returners, particularly those engaging in "wardrobing" on platforms like Instagram, adds another layer to the issue. Customers buy outfits for a one-time wear, take photos, and then return the clothes, impacting the resale value of returned inventory.

7. Viral Refund Hacks: Refund abuse has gained visibility through social media, with customers sharing money-saving "life hacks." Platforms like TikTok and Reddit become spaces where users discuss and spread information about exploiting certain merchants' return policies.

8. Reasons for Genuine Customer Refund Abuse: Genuine customers engaging in refund abuse are often opportunistic rather than malicious. Reasons include a sense of entitlement to refunds, a misconception that large corporations can absorb the costs, and the belief that there are no consequences for their actions.

9. Merchant Dilemma: Merchants face a dilemma in addressing refund abuse. While stricter return policies could mitigate abuse, they might also deter customers. Many businesses, especially those in expansion phases, find it challenging to strike a balance between offering seamless customer service and protecting themselves from financial losses.

In conclusion, the dynamics of refund abuse in the e-commerce landscape are multifaceted, influenced by external factors such as the pandemic, evolving customer behaviors, and the intricacies of online business operations. It's crucial for businesses to navigate this terrain carefully to maintain a balance between customer satisfaction and financial sustainability.