Understanding return & refund fraud in ecommerce: types, impact & prevention strategies
The rise of ecommerce has brought with it a surge in return and refund fraud. What started as isolated incidents has become a widespread challenge, hitting retailers with financial losses, operational disruptions, and strained customer trust.
According to the National Retail Federation, return fraud cost retailers over $101 billion in 2023 alone. As fraud becomes more sophisticated, ecommerce businesses are under pressure to offer flexible return policies while defending against exploitation.
This blog breaks down the most common types of return and refund fraud, why it’s on the rise, and how businesses can protect their operations. We’ll also look at how ShipAccel can help streamline returns while reducing fraud risk.
Table of contents
Financial impact of Return and Refund Fraud on Ecommerce Retailers
How to Prevent Return Fraud: Best Practices
Impact of Return and Refund Fraud on Shipping Operations
How ShipAccel Can Help Ecommerce Businesses Manage Returns and Prevent Fraud
What is return fraud?
Return fraud happens when customers abuse a retailer’s return policy for financial gain. This includes tactics like sending back used or different items, creating fake receipts, or making false claims. Because ecommerce is built on speed and convenience, it’s especially vulnerable to fraud. Retailers must find ways to protect their return process without compromising customer service.
Why it’s a growing concern
A few key trends are fueling the rise of return and refund fraud:
- More online shopping means more returns—and more fraud opportunities.
- Lax return policies make it easy for scammers to take advantage.
- Anonymity and tech loopholes make it harder to verify claims.
- Fraud tactics are evolving, from fake receipts to package tampering.
Return fraud jumped nearly 20% in 2023, according to Appriss Retail. The NRF also reports that 13.7% of ecommerce returns are fraudulent.
In short, return fraud isn’t just an operational issue—it’s a threat to profitability and customer trust.
Return fraud vs refund fraud
While related, return fraud and refund fraud are not the same.
Return fraud involves physically returning something dishonestly. Examples include:
- Sending back a used or swapped item
- Returning something not originally purchased
Refund fraud doesn’t involve a return at all. Instead, customers claim:
- An order didn’t arrive
- The product was damaged
- They received the wrong item
Refund fraud now makes up nearly 30% of ecommerce fraud cases (SEON). Both types drain revenue, but each requires different fraud prevention strategies.
For ecommerce businesses, knowing the difference is key to designing smarter return policies and detection systems.
Common types of return fraud
Return and refund fraud costs retailers millions every year. These scams take advantage of lenient return policies, automated systems, or inconsistent verification steps.
Understanding the types of return frauds out there helps businesses build smarter defenses. Below are the most common return fraud methods today.
Wardrobing
Customers buy items—like clothing or electronics—use them briefly, then return them claiming they're unused. Common in the fashion and consumer tech industries, this practice exploits lenient return policies. Solutions include tamper-evident tags, shortened return windows, and tracking repeat offenders.
Bracketing
Shoppers order multiple versions (sizes, colors) of the same item and return most of them. While often disguised as convenience, excessive bracketing increases return volume, restocking costs, and fulfillment strain. Retailers can curb it by setting return thresholds or limiting bulk returns.
Empty Box Fraud
Fraudsters return boxes with no item—or a cheaper one—in place of the original product, then claim a full refund. High-value electronics are common targets. Weight checks, item tracking, and verification at check-in can reduce losses.
Price Arbitrage
A customer buys an item at a discounted price and returns it when the price goes up, pocketing the difference. This scam is especially common around holidays and sales events. To prevent it, always refund based on the original purchase price.
Price Tag Switching
A lower-priced tag is swapped onto a higher-priced item before purchase. The buyer then returns the item using the higher price to gain a refund. Barcode pricing, packaging integrity checks, and automated SKU verification help detect inconsistencies.
Chargeback Fraud
Also called "friendly fraud," this involves customers disputing a valid charge with their credit card provider after receiving the product. Common claims include unauthorized purchases or missing items. Retailers can fight back with delivery confirmations and robust order documentation.
Receipt Fraud
Fake, altered, or reused receipts are used to return items not actually purchased or to claim inflated refunds. This is easier when retailers don’t match receipts to internal records. Best practices include verifying receipts at POS and flagging suspicious return histories.
Switch Fraud
Involves returning a different item—used, broken, or lower-value—in place of the purchased one. This is common with personal care products, small appliances, or electronics. Scanning serial numbers and photographing items at return time helps prevent it.
Bricking
The customer deliberately damages an item (e.g., overloading electronics) and returns it, falsely claiming it was defective. Often seen in gaming and tech, this can be mitigated by inspecting returned devices or offering repairs instead of instant refunds.
Stolen Goods Fraud
Shoplifted items are returned—sometimes with a fake receipt—for store credit or refunds. Without proper purchase verification, stores may unknowingly refund theft. Requiring receipts and enforcing ID verification can deter this type of fraud.
Employee Fraud
Employees issue fake refunds, process returns for items never sold, or collude with others. This internal fraud drains inventory and revenue. Monitoring return activity by employee, enforcing dual approval, and auditing returns are key controls.
Cross-Retailer Returns
Customers purchase an item at one retailer, then return it to another with a more flexible return policy—particularly when both stores sell similar or branded items. Solutions include using store-specific receipts and SKU-level tracking.
Gift Card Fraud
Customers use gift cards—often promotional or stolen—to purchase products, then return them for cash or reusable credit. To prevent abuse, retailers can restrict refunds to the original method or exclude gift card purchases from return eligibility.
Credit Card Fraud
Fraudsters use stolen credit card info to buy an item, then return it and request the refund be issued to another card. This scam is hard to detect without strong fraud prevention tools. Payment tokenization and return-to-source policies are effective deterrents.
Financial impact of return and refund fraud on ecommerce retailers
Return and refund fraud poses a significant financial challenge for ecommerce businesses. While individual cases may seem small, they quickly add up—impacting margins, straining cash flow, and inflating operational costs. From restocking unsellable items to managing fraudulent disputes, the effects touch nearly every area of the business. These pressures intensify during peak seasons, turning return fraud into a growing threat to profitability.
Direct loss of revenue
Return fraud results in immediate lost sales. When customers return stolen items, send back used products, or falsely claim non-delivery, businesses issue refunds without receiving valid payment. Over time, these losses compound, weakening revenue and undermining financial stability.
Increased operational costs
Fraudulent returns increase backend workload. Teams must inspect, process, and restock questionable items—driving up labor costs. Retailers also absorb reverse shipping fees, packaging costs, and restocking expenses, all of which erode profit margins.
Lost inventory and product damage
Returned items often arrive damaged, incomplete, or tampered with—making them unfit for resale. Whether it's missing components, excessive wear, or deliberate sabotage, fraudulent returns disrupt inventory accuracy and lead to shrinkage. These items are frequently written off, representing a direct financial hit.
Fraud prevention and detection costs
Fighting fraud requires investment. Ecommerce businesses often implement fraud detection software, staff training, and transaction monitoring systems to flag suspicious behavior. While these tools reduce risk, they carry upfront and ongoing costs—particularly burdensome for small to mid-sized retailers.
Impact on cash flow
Fraud-related refunds tie up capital that could otherwise fund inventory, marketing, or business growth. For retailers operating on tight margins or scaling quickly, these disruptions affect liquidity and make financial planning more difficult.
Reputation and customer trust loss
To combat fraud, businesses may adopt stricter return policies or introduce delays—both of which can frustrate honest customers. If the return experience becomes too rigid or inconsistent, it damages brand perception, reduces repeat purchases, and risks negative reviews that hurt long-term revenue.
Increased shipping and handling costs
Fake or abusive returns generate additional shipping expenses—especially when retailers offer free returns. From reverse logistics to package handling and repackaging, each fraudulent claim creates hidden costs that chip away at profitability.
Potential legal costs and penalties
In some cases, businesses must pursue legal action against repeat offenders, hire fraud investigators, or upgrade compliance systems. If regulators deem return practices inadequate, retailers may also face fines or penalties under consumer protection laws.
How to prevent return fraud: best practices
To reduce fraudulent returns, ecommerce businesses should take a proactive, layered approach. Start with clear return policies that set expectations around timing, condition, and proof of purchase. Use fraud detection tools to flag suspicious behavior like excessive returns or mismatched order data. Verifying purchase history before processing a return helps spot abuse early. Educating customers on fair return use and training staff to identify red flags also make a difference. A proactive strategy like this protects profit margins and supports long-term sustainability in a competitive ecommerce market.
Implement a clear and concise return policy
A strong return policy is the first line of defense. It should clearly state the return window, item condition requirements (e.g., unused, in original packaging), and exclusions. Making this policy easy to find and understand helps reduce confusion, sets customer expectations, and discourages fraud from the outset.
Utilize fraud detection technology
AI-powered fraud detection tools can spot suspicious patterns—like repeat returns, mismatched account details, or unusually high refund activity. These systems help ecommerce businesses flag fraud before it happens, without slowing down the process for honest customers.
Limit cash refunds
Offering store credit or gift cards instead of cash refunds can reduce fraud risk, especially on high-value items. Cash refunds are harder to track and often attract scammers seeking immediate, untraceable payouts.
Require customer identity verification
Asking for a valid ID during returns—especially without a receipt—adds accountability. It deters scammers, allows retailers to track return history, and helps flag repeat offenders without inconveniencing legitimate customers.
Require proof of delivery and purchase for returns
Always request order numbers, receipts, or confirmation emails for any return. Proof of delivery—like tracking info or signature confirmation—helps retailers verify claims and protect against false reports of non-delivery.
Use return-authorization (RA) numbers
Implementing a return merchandise authorization (RMA) process helps retailers control and track returns more effectively. By requiring a return merchandise authorization number before accepting a package, businesses can confirm the item is a verified purchase and within policy. This extra step strengthens fraud prevention and streamlines return management.
Monitor and control return timeframes
A clearly defined return window is a powerful fraud prevention tool. By limiting the return time (e.g., 30 days) and consistently enforcing it, retailers reduce opportunities for abuse. Monitoring return patterns ensures items are sent back within policy, while requiring proof of purchase or proof of delivery adds another layer of protection. Together, these safeguards make it harder for fraudsters to exploit lenient policies.
Prevent wardrobing with product tracking
Use discreet security tags or QR codes on apparel and high-ticket items. These tools help detect if a product has been used before being returned and deter wear-and-return fraud.
Track customer return behavior
Monitor return patterns by account or purchase history to detect serial returners. This data can be used to flag risky behavior and apply stricter return rules where needed.
Train employees to recognize fraudulent returns
For retailers, staff training is a vital part of fraud prevention. Employees should learn to spot red flags like customers returning damaged goods, frequent high-ticket returns, or items with missing components. Well-trained teams can stop fraudsters before losses occur. Regular refresher sessions keep employees sharp and updated on the latest fraud prevention techniques, ensuring return policies are applied consistently and protecting against costly fraudulent returns.
Educate customers on acceptable return practices
Communicate your policy clearly across your website, email confirmations, and checkout pages. When customers understand what's acceptable, they're less likely to abuse the system.
Incorporate return-shipping restrictions
Require customers to cover return shipping for items outside your policy. This reduces fraudulent claims and discourages policy abuse, especially on products frequently targeted for returns.
Impact of return and refund fraud on shipping operations
Return and refund fraud doesn’t just affect revenue—it also puts a heavy strain on shipping and logistics. Fraudulent returns can disrupt fulfillment workflows, increase shipping costs, delay processing times, and complicate global operations. These challenges lead to inefficiencies that impact customer satisfaction and overall business performance.
Increased shipping costs
Return fraud often results in unnecessary return shipments, which ecommerce retailers typically absorb. Fraudsters may exploit free return policies or send back ineligible items, driving up return shipping expenses. For low-margin products, even a few fraudulent returns can significantly cut into profitability.
Impact on return logistics and operations
Dealing with fraudulent returns requires more time and resources from warehouse and logistics teams. Products need to be unpacked, inspected, and repackaged—often manually. This slows down operations, diverts resources from legitimate returns, and impacts overall fulfillment efficiency.
Increased order processing times and delays
When return fraud volume rises, it creates bottlenecks in processing and restocking. This can delay inventory updates and slow down order fulfillment, especially during peak shopping seasons. These delays frustrate customers and reduce operational agility.
Negative impact on customer satisfaction and delivery times
Fraudulent returns clog the system, creating ripple effects for honest customers. Slower delivery times, backlogged orders, and longer processing windows lead to poor shopping experiences and damage brand trust.
Compromised return shipping policies
Free return shipping is a popular customer perk, but fraud can make it unsustainable. Fraudsters may send back ineligible or fake returns, forcing the business to absorb non-refundable shipping fees. Retailers may consider limiting free returns or setting stricter conditions—though this requires balancing fraud control with customer experience.
Risk of loss or damage during return transit
Fraudulent returns are often poorly packed, broken, or tampered with—raising the risk of damage during transit. These returns can’t be resold and increase write-off rates. Retailers may need to invest in better tracking, packaging standards, and inspection processes to reduce losses.
Increased risk of abuse of free return programs
Fraudsters frequently exploit generous return policies, especially free return shipping. They may use products before returning them or falsely claim issues to get refunds. This increases the return burden and erodes the financial viability of customer-friendly return programs.
Impact on international shipping
International return fraud adds layers of complexity. Cross-border returns mean higher shipping costs, customs paperwork, and longer timelines. Fraudsters may exploit global return loopholes, increasing operational burdens for businesses that sell internationally.
How ShipAccel can help ecommerce businesses manage returns and prevent fraud
ShipAccel helps ecommerce businesses streamline returns, cut costs, and fight fraud. The platform automates key parts of the return process—from creating return shipping labels to verifying purchase history—saving time and improving accuracy.
With built-in fraud detection, real-time tracking, and customizable automation rules, ShipAccel flags suspicious activity before it hurts your bottom line. Retailers can validate returns through RA numbers, enforce return policies, and gain full visibility into return trends.
This level of control helps reduce refund fraud, improve return management, and create a smoother customer experience. ShipAccel equips ecommerce businesses with the tools to scale efficiently and stay ahead of fraud. the control and confidence they need to scale returns without sacrificing margins—or customer satisfaction.
Return and Refund Fraud FAQs
Is Return Fraud Illegal?
Yes, return fraud is illegal. It involves deceitful actions, like returning stolen goods or using fake receipts to get a refund. Perpetrators can face legal consequences, including fines or criminal charges. Retailers may also pursue legal action to recover losses associated with refund fraud.
How can Retailers Identify Fraudulent Returns?
Retailers can identify fraudulent returns by looking for signs such as frequent returns from the same customer, missing packaging, inconsistent return reasons, no receipts, and suspicious patterns like returning used or damaged items.
What Constitutes Refund Abuse?
Refund abuse occurs when customers exploit return policies, like returning used items, excessively returning goods, or seeking refunds without proof of purchase.