Technology Helps Nip Return Fraud at the Source
Retailers in the midst of an economic downturn have noticed a sharp increase in the number of returned merchandise they receive, and as a result, they are also seeing an increase in return-fraud cases, which is expected to cost them more than $15 billion this year, according to a National Retail Security survey.
About 9 percent of all returns are fraudulent, according to the survey.
Irvine, Calif.–based technology provider The Retail Equation has been able to help many of these stores recoup some of their losses as well as post gains in other areas of their businesses. The company has developed software systems focused solely on returns transactions. Its Verify-1 application, launched five years ago, recently logged its one millionth fraud case.
The system uses statistical modeling in conjunction with a retailer’s return policies and state laws to accept or reject returns during the transaction.
Returns fraud has many faces, said Robert Walters, vice president of sales and marketing. Some forge receipts while others will find a receipt in the parking lot of a store and then shoplift the items on the list and return them for cash. Some just go from store shelf to returns department.
Whatever the method, the problem has been on the upswing during the recessionary economy. According to the recent National Retail Federation survey, returns are up 23 percent. Return fraud topped $3 billion nationally during the past holiday season and could be up more this season.
The executive said The Retail Equation’s system is focused more on habitual abusers and thieves. Strict return policies and store security have helped stores, but the power of technology can be much more effective, resulting in a reduction in store returns of about 5 percent for The Retail Equation’s customers.
At the point of return, stores collect data such as driver’s license numbers and other information, which enables Verify-1 to chart patterns of fraud and abuse and act accordingly by verifying or rejecting returns on the spot.
It has also been able to leverage the data to work for its customers. The company’s Return Rewards program generates coupons for regular customers, turning the somewhat negative experience of returning an item into a positive one. The company’s research shows that about 54 percent of a retailer’s customers fail to make a new purchase within 18 months after returning merchandise. By improving the returns and exchanges transaction, stores are able to enhance sales.
Retailers have been taking note of systems such as The Retail Equation’s. Despite the economy, the company’s bookings are up this year, Walters said.
“They’re willing to invest in technology that has easy, identifiable return-on-investment. With us, it’s like a self-funding project,” he said.—Robert McAllister
