Convenient receiptless return policies are quickly becoming table stakes for retailers wooing customers. But this generous customer service often comes at a price – fraud.
According to recent research, receiptless returns fraud is costing the retail industry $9.7 billion a year. And for some companies, it adds up to an astounding $1 million per day in daily losses.
That level of revenue loss is threatening an otherwise effective marketing strategy, but finding a solution that serves the company as a whole can be a challenge. Marketing leaders prefer liberal policies that help acquire and retain customers, but loss prevention leaders want more conservative approaches focused on preventing shrinkage to preserve profit.
These disparate goals can make adversaries out of teams that should be be united against a common enemy. And their conflicting views on how to win the battle can inadvertently harm a brand’s greatest asset—their law-abiding customers.
Many Receiptless Return Solutions Catch the Wrong Shoppers
To combat the rising threat of receiptless returns, many retailers have implemented predictive analytics solutions that assign a risk score to each customer making a return, in the hopes of identifying fraudulent returns.
But these return optimizations systems are imperfect. They’re expensive and difficult to manage, and they identify fraudsters only after they’ve committed enough crimes that an observable trend emerges. Worst of all, they often lead to aggressive tactics that undermine customer service.
Take for example the Wall Street Journal piece about the father who went to a Best Buy in Mission Viejo, CA and bought his sons cell phone cases as gifts in different colors. After the boys made their choices, the father went back to Best Buy—with the receipt—to make the return. But Best Buy’s system flagged him as a fraudster and the company banned him from making any further returns or exchanges for a year—even though he was within the 15-day return period and had made no prior returns.
Or this story that’s even closer to home: Madeline, one of our SheerID colleagues, bought several swimsuits online from a major retailer with the intention of keeping the one she liked best. But when she went to the brick and mortar store to return the unused items, the store couldn’t identify them and assumed the return was fraudulent. The store eventually discovered the error and accepted the return, but the whole experience left Madeline too embarrassed to shop there again.
Contrast this with the experience of one of SheerID’s customers in which a shopper we’ll call Joe Fraudster traveled through six states and used multiple fake IDs to return $150,000 in stolen construction equipment.
As a retailer, who are you trying to stop?
Clearly brands need a system that prevents fraudulent returns without hurting honest customers. But does one even exist?
Digital Verification: A Solution that Serves Both Marketing and Loss Prevention
Digital Verification is an effective solution because it enables excellent customer service while also preventing receiptless returns fraud. Here’s how it works.
Retailers typically record driver’s license data (DLD) to enforce return policies, but companies often can’t determine whether the customer is presenting a valid driver’s license or using a fake ID to perpetrate fraud.
Digital verification instantly verifies a shopper’s ID when they’re making a return without a receipt. Instead of using predictive modeling, which requires a shopper’s transaction history, it leverages authoritative data sources to automatically verify DLD authenticity and determine if a driver’s license or other state-issued ID is valid.
By instantly identifying when individuals are using fake IDs to return merchandise, Digital Verification leads to an immediate reduction in receiptless returns fraud and discourages related forms of fraud, such as shoplifting. It’s a solution that both marketing and loss prevention teams can get behind because it prevents fraud while keeping customers happy.
5 Best Practices for Using Digital Verification to Prevent Receiptless Return Fraud
Digital Verification can enable flexible marketing policies and support your efforts to reduce fraud. Here are some guidelines for folding it into your company.
- Fraud protection should be proactive, but not at the expense of the good guys. Make sure your approach isn’t overly aggressive.
- Maintain a friction-free customer experience by ensuring your verification process is instant and seamless. It should be automatic and part of the transaction, not intrusive in a way that requires excessive steps for store employees or your customers.
- Digital verification should easily allow you to apply your own rules, such as limiting the frequency of returns allowed in a specific time period, so you can ensure customers are in compliance with your policy at the time of the return.
- Keep the pressure off of frontline employees with an automated system that does the hard work—the actual verification—for them. Ideally, the system would be intuitive and require minimal training.
- Start where you are: Digital verification should complement your existing systems, everything from return optimization solutions and ecommerce platforms, to POS systems, loyalty management systems and promotions tracking solutions.
A Digital Verification system like SheerID’s is a powerful tool that helps marketing and loss prevention teams fight receiptless return fraud–and win.