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How Customers are Contributing to the Increase of Casual Fraud and the Methods They Use


Britain’s rising wave of accidental fraud: customers are abusing the system by ‘renting clothes for free’, claiming goods have not arrived and making bogus returns

A rising tide of accidental fraud is hitting Britain’s online retailers as customers abuse the system in ways ranging from sharp practices to outright scams.

The number of customers engaging in this is on the rise, according to a new report from fraud prevention firm Ravelin. It says one in three online businesses say ‘criminal clients’ are now their biggest risk factor.

The report highlighted four forms of customer fraud: claiming items did not arrive, ‘free rental’ of clothes by wearing and returning them, fake returns, and abuse of refunds/promotions.

The scale of the abuses led Ravelin to argue that online merchants’ own customers are almost as likely to commit fraud against them as organized criminals.

Casual fraudsters: Customers abusing the system in various ways are on the rise, new report says (stock image)

Ravelin said more than a third of finance leaders described first-party fraud, including “friendly fraud,” returns and promotion abuse, as the top risk facing their companies.

Payment fraud remains the top business risk for respondents, followed by friendly fraud, account takeover and policy abuse.

It said 52 percent of merchants reported an increase in abuse of returns and refunds, as well as abuse of promotions.

Celebrate criminal customer fraud

DNA/didn’t arrive

This occurs when a customer falsely claims that the goods they ordered never arrived, were damaged in transit, or were faulty upon arrival. The customer then requests a refund and resells the additional goods. This is perhaps the most common form of refund misuse.

Wardrobe/free rental

A customer returns an item after using it, for example a dress after wearing it to a wedding.

Fake returns

This happens when customers return different – usually inferior – items than the one they purchased. The merchant approves the refund before checking the contents of the package.

Refund/promo abuse crossover

A customer fills their shopping cart to qualify for free shipping or high spender gifts and then returns the unwanted items when they have taken advantage of the offer.

The prevalence of both informal criminal clients and professionally organized fraudsters has increased significantly over the past 12 months.

The report said the cost-of-living crisis had contributed to the increase in fraud, while 35 percent of chief financial officers said the Covid-19 pandemic has also increased fraud in their companies.

Jason Lane-Sellers, director of market planning at LexisNexis Risk Solutions, agrees that friendly and direct fraud are both on the rise.

“Part of it is driven by economic conditions, as any financial crisis will always result in an increase in fraud attempts,” he says.

In LexisNexis’ latest Cybercrime report (expected in May), Lane Sellers says nearly a quarter of all fraud reported to their network is related to first party situations, where the valid customer is involved in perpetrating the fraud .

The Ravelin report showed how companies reported an increase in fraud

The Ravelin report showed how companies reported an increase in fraud

According to Ravelin, the trend seems particularly pronounced among younger age groups.

A separate report from fraud agency CIFAS found that one in 13 people admitted to being involved in some form of first-party fraud – rising to one in seven among digitally savvy 16-34 year olds.

What is Friendly Fraud?

This happens when a customer makes a purchase using a debit or credit card and then contacts their bank to dispute the charge despite having no legitimate reason to do so.

Consumer expert Martyn James points to another common dispute where the number of complaints is skyrocketing among those who sell their goods online through an online marketplace such as Ebay or Etsy.

Many of these sites have buyer/seller policies, which give you some rights if something goes wrong.

“This is where things get cloudy,” says James, as some customers claim there was nothing in it when they received the package.

When it comes to sellers who can prove they shipped the items, he says “if the package isn’t sealed for the carrier and they witness it, it’s pretty much impossible.”

It’s not just small business owners who are affected by these return scams. James says Amazon is also affected, with the company writing off these claims if the value falls below a certain amount.

Martin Sweeney, CEO of Ravelin, said the main response to increasing fraud by retailers is “to throw more money and resources at it: bigger fraud teams, more processes.”

He argued that this is unsustainable as fraud will continue to grow and mutate. Instead, he argued that companies need to get smarter about detecting and preventing fraud.

Retailers recognize that the vast majority of internet shoppers are scrupulously honest, but also that they need to be increasingly vigilant about those who aren’t, he adds.

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