This article talks about liberal returns and return frauds as two sides of a story making it important to strike a balance for its optimum use by consumers and retailers. It gives an insight into the Indian scenario on the issue.

Sometime ago, the National Health Service (NHS) provided free ambulance pick-up and drop-off in emergency patients in United Kingdom. Many people living in the suburbs would feign a medial emergency and avail of the free ambulance service with the intention of getting a free ride to the city center to shop. Due to this heavy misuse, the NHS has now converted this service to a paid service unless the doctor writes off the fare – in case of an actual emergency.

Similarly we are so heavily focused on customer experience by luring them with generous offering like COD payments, doorstep delivery, no questions asked return policies, everything to please the buyer. But soon we have to focus on ‘buyers fraud’, where buyers cannibalized genuine parts replacing them with fake ones and then simply returning the product.

India’s e-commerce penetration has grown many folds in the last few years. 89 percent regular customers continue to shop online, as they are reassured of the liberal return policies offered by e-tailers. On an average 11-12 percent of all online purchases are returned by customers. Of course this percentage differs across products, with an alarming return percentage of 20-25 percent for online apparel.

Nearly 14 percent of the returns received by e-commerce companies are fraudulent, and they are expected to increase as long as companies continue with no questions asked returns. The exchange fraud rate is observed to be about 40 percent for mobile phones and can go as high as 90 percent on large appliances even from posh localities.

Another fraud is the unboxed return fraud, where buyers buy a product then place a return request because it doesn’t match their need, cannibalize internal parts before returning the product. An example, a circuit is removed from an air-conditioner. Buyers may not be capable of carrying out this type of ‘technical fraud’ themselves; but many a times multiple middlemen buy these unboxed goods, remove important parts from them and resell them to retailers (in the B2B space). Flipkart a leading online store in India has undertaken CRISIL verification of its vendors to prevent this type of fraud.

Another variation is the exchange fraud. To push sales of new launches, players encourage buy backs claiming that they are in good condition. For example, the buyer could exchange a washing machine for a new one, wrongly claiming the full functionality of the old washing machine, making it a very good case for buyers exchange fraud.

Even at stores, return fraud relating to stolen merchandise and use of falsified receipts are exchanged for cash or store credits. The toll is even higher for retailers who rely on Omni channel retail intending to close the loop on ecommerce and marketing purchases in person. The problem of return fraud is even more complex as the customers are able to interact (in-store, mobile, desktop), so to keep track of his purchase and returned products becomes even more difficult.

Technology has played a significant role in deterring fraudulent returns. Better use of data, a more end-to-end perspective and prevention programs are helping to reduce return rates for some operations but there is still room for improvement. The more information retailers can collect from a customer, the better they can head off fraud and nail down the reason for the returns. The advantage of having more information about their customers would discourage them from returning fraudulent merchandise and disappearing with the refunds. Therefore retailer continue to their tried and true ways of combating frauds through increase usage of identification, as well as seeking new and innovative approaches on the back end too. Some companies are developing a Customer Behavior Index (CBI) to predict the frauds to be committed by consumers basis their historical behavior.

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To combat this issue for etailers, third party logistics providers are offering “quality check at doorstep”. This product allows ecommerce companies to decide process flow to be followed at the customer’s doorstep for each pick-up. Once the rider completes the quality check of the pickup at the doorstep the result snapshot is shared with clients and the end customer, bringing complete transparency in the whole process. This has had astonishing returns in bringing the fraudulent returns drastically down.

So it is important to have liberal returns policies for customer satisfaction but also equally important to make the returns barrier high so that this practice is not misused.

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Dr. Sunnanda Panda
Dr. Sunnanda Panda, logistics professional with a PhD in reverse Logistics. Founder and CEO of RevLog Resources, India.