Refund abuse threatens online marketplaces’ profitability

Online marketplaces are experiencing a significant rise in what is being called ‘refund abuse’, where customers overuse a company’s refund policy to the point of unprofitability. 

A study by fraud detection specialist, Ravelin, which polled 1,000 fraud professionals working in large online merchant businesses around the world, suggests this is a rising problem globally for online marketplaces, with food delivery companies particularly badly impacted, with over half (57%) noticing an uplift in the past 12 months. 48% of ride-hailing app companies and 44% of goods and services companies have also seen noticeable increases in the trends.

These rises have coincided with the pandemic where merchants sought to soften returns policies and offer contactless delivery to encourage sales. Merchants then quickly found it difficult to track successful deliveries and genuine returns.  Even pre-pandemic, refund abuse proved to be a problem for online retailers. ASOS actively sought to blacklist serial returners in 2019, who cost the retail industry £60 billion each year.

“While refund abuse isn’t always fraud as such, it’s something that online marketplaces, and ecommerce in general, should treat just as seriously. As our research has shown, it’s one of the fastest-growing hits to profitability,” said Ravelin’s CEO Martin Sweeney.  “I sympathise with the challenge facing online marketplaces. This is a relatively young industry, where competition is tough and every app has to offer the best deals and the easiest returns policies. So, it’s a fine balance to strike between offering convenience and protecting profitability.”

While abuse is on the rise over the past 12 months, so too are other serious and costly forms of fraud. 40% of online marketplaces have suffered a rise in online payment fraud. 48% have also seen an increase in account takeover, where online logins fall into the hands of cybercriminals who then make fraudulent purchases. And 41% have seen an increase in friendly fraud, where customers wrongly request a chargeback from their bank after making a purchase.

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