Retailers across the UK are bracing for a challenging economic period. While the winter months are usually the busiest period for brands, the country is in the grip of a cost-of-living crisis, with prices rising much faster than wages and incomes.  

Even shopping events like Black Friday and Cyber Monday offered little respite. While sales last year exceeded expectations, with Barclaycard Payments statistics showing a 3.2% rise in transactions compared to the year before, a report from clothing returns specialist ReBound revealed that returns were 8.4% higher compared to 2021. Many consumers are buying less, reviewing their spending habits, and looking for more ways to save money. 

Against this backdrop of reduced demand, many retailers are having to work much harder to attract and retain customers. But while they focus on new ways to entice shoppers, such as offering more discounts, gifts, referral bonuses and promotion codes, they must not overlook another emerging consumer behaviour trend: policy abuse.  

The basics of policy abuse 

Policy abuse happens when a customer manipulates or contravenes a retailer’s terms and conditions. While it is different to traditional card-not-present fraud and is usually committed by a brand’s regular customers rather than fraudulent actors, policy abuse can still result in significant lost revenue and cause financial damage to a retailer. And given that online retailers are more used to protecting themselves from fraudsters using stolen credentials, spotting policy abuse by legitimate customers is very difficult and it can often be overlooked by retailers.  

During the Covid-19 pandemic, there was a steep rise in policy abuse as consumers relied more heavily on online shopping. With the cost-of-living crisis putting pressure on consumers to try and save or make extra money, policy abuse is expected to increase once again. 

Policy abuse takes many forms. One of the most common (and least sophisticated) types of abuse is related to exploiting a retailer’s refund and returns policy. A customer may falsely report a missing product to a retailer to claim a refund or request a second copy to be posted. Similarly, a customer may return used or worn goods to a retailer or may even send back an empty box while keeping the original item.    

Another common form of abuse occurs when a customer misuses promotional codes to gain extra discounts beyond the retailer’s original intentions. Thanks to social media, it is very easy for promotional codes to be shared or misappropriated.  

A more sophisticated form of policy abuse concerns the reselling of goods. An individual may purchase several copies of an in-demand product, such as luxury goods or concert tickets, and then sell the item on for a higher price to make a profit. The buyer may use multiple email addresses to circumvent a retailer’s purchasing restrictions. These individuals may consider reselling to be an additional source of income or even a full-time job, but if there is a limited supply of the item in question, reselling can be frustrating for legitimate consumers who then cannot buy the product. The damage then goes beyond the bottom line to the brand’s image being negatively impacted.   

Dealing with policy abuse 

Combatting policy abuse is incredibly challenging, especially if a retailer does not have the right tools and processes in place. And just like when fighting traditional digital fraud, online retailers need a strategy that balances offering customers a frictionless experience with preventing financial losses.  

For instance, if a customer makes dozens of purchases but is suspected of committing policy abuse on just a single item, some retailers may prefer to ignore the incident rather than investing resources in investigating it further and risk alienating a customer. Similarly, policy abuse is not necessarily committed by “bad” actors, but by customers who simply think they are taking advantage of loopholes in a company’s terms and conditions. But if policy abuse is overlooked, online retailers can incur a terrifying amount of lost revenue.  

Retailers require a robust and thoughtful strategy, using fraud prevention tools that can identify the signs of policy abuse without adding to the customer service team’s existing workload. Most fraud prevention solutions typically concentrate on account or product-based rules at the checkout, but more sophisticated tools can analyse each step of the customer journey, including return requests and missing item claims. By identifying when policies are being exploited and by whom, these sophisticated solutions empower retailers to prevent abuse without frustrating loyal customers.  

Fighting policy abuse offers benefits beyond revenue retention, including reducing losses across merchandise, logistics, refunds and more. A good strategy can increase digital sales, by reducing friction and ensuring increased product availability for trusted customers, as well as creating a better overall experience. With the right technology and data insights, retailers can reduce – and often prevent – financial damage from policy abuse. 

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• Source: https://www.finextra.com/blogposting/23674/why-online-retailers-must-beware-of-policy-abuse?utm_medium=rssfinextra&utm_source=finextrablogs