Smartly fight policy abuse in online retail

Article by Forter A/NZ Country Manager Matt Humphries.

Policy abuse affects nearly every online business. The problem with policy abuse, compared to conventional fraud, is that the perpetrators of policy abuse are not necessarily cybercriminals hiding their identities. Instead, legitimate customers often commit policy abuse with accounts and purchase histories. Additionally, customers who take advantage of flexible policies are often the source of abuse.

The problem is endemic and appears to be on the rise during pandemic shutdowns in the Australia and New Zealand region. The Australian Competition & Consumer Commission reports that online shopping scams totaled more than $62 million last year in Australia. The rise of Buy Now, Pay Later (BNPL) services in Australia has also exacerbated the problem of policy abuse, with fraudulent returns being made before the end of the full payment cycle.

The challenge for online retailers is to strike the right balance when it comes to policy abuse. Being too aggressive risks offending legitimate customers. But, on the other hand, being too flexible can lead to substantial bottom line losses, as these numbers suggest. The key lies in using the right tactics and technologies – which differ from those used against online fraud – to combat policy abuse.

When Good Customers Behave Badly

Policy abuse comes in many forms – a typical example is returns abuse. Good customers sometimes take advantage of return policies by “keeping” an item, which means wearing it and then returning it. This practice is so common that global retailer ASOS announced a serial returns blacklist in 2019. Customers can also repurchase an item they’ve previously purchased, return the old item and keep the new one.

Other examples of policy abuse include promotion abuse (creating numerous accounts to use discount codes or coupons multiple times) or item not received abuse (claiming that a purchased item is not never happened). These abusive behaviors lead to losses for online retailers in multiple ways – from wasted investment in winning new customers to returning merchandise that cannot be resold and must be written off.

More political abuse during the pandemic

During the pandemic, lockdowns, social distancing measures, and personal safety concerns caused many consumers to shift their purchases online. Australia Post measured a 27% increase in online shopping comparing September 2020 to September 2021. Additionally, their Inside Australian Online Shopping 2021 report suggests that 82% of households shopped online in 2020.

Rising order volumes also caused supply chain and last-mile delivery issues during this period.
Amazon recently started offering its new Uber-like service Amazon Flex, where drivers can choose their working hours to some extent; Australia Post has also added a Saturday morning postal service to its regular hours, in a bid to overcome backlogs.

In addition to long delays, these constraints on fulfillment processes also lead to missed deliveries, allowing false claims of lost packages to be camouflaged among legitimate packages. It is therefore not surprising that dishonest behavior has seen a corresponding increase. A Forter study also found that nine out of ten companies experienced policy abuse in the past 12 months, with promotion abuse being the most common.

Take a new approach against policy abuse

Many online retailers rely on traditional fraud solutions and internal review processes to deal with abuse-related losses. Unfortunately, because they are designed to identify fraudsters rather than customers abusing policies, these methods can be ineffective in combating policy abuse.

Overly complex or strict return policies, on the other hand, can turn away current or potential customers, as well as a lifetime of loyalty. As a result, retailers walk a tightrope between managing policy violations and maintaining strong customer relationships.

The intelligent approach to policy abuse begins with understanding the types and extent of abuse encountered. With this information, online retailers can begin to adopt technologies that actively identify repeat offenders who are taking advantage of policies. The right technology will be able to identify:

  • Abuse of promotions: Limitation of discounts and coupons to one-time use per identity.
  • Abuse of Items Not Received (INR): Adjusted real-time policies to require repeat offenders to sign for delivery.
  • Return Abuse: Updated policies to allow these buyers to purchase “final sale” items, with no possibility of return.
  • Reseller Abuse: Identify and block resellers who would otherwise buy products (usually in volume) to resell them without approval.

More importantly, with the right technology, retailers can automate and scale this process as their business expands. As their e-commerce footprint grows, they will be able to offer policies that ensure a positive customer experience while achieving the desired business results.

Article by Forter A/NZ Country Manager Matt Humphries.

Anne G. Cash