Online Retailers Are Facing Financial Losses due to Policy Abuse, Claimed Riskified Report

Riskified, a company specializing in ecommerce fraud and risk intelligence, has recently released a report titled “Policy Abuse and Its Impact on Merchants: Global Benchmarks 2023.” The report sheds light on the growing issue of consumer misuse of refunds, returns, and promotional programs, which is causing retailers and merchants to face a difficult challenge in balancing customer satisfaction and profit loss.

According to the report, policy abuse, which includes behaviors such as excessive returns, refund scams, and abusing promotions, is becoming increasingly prevalent. A staggering 90% of online merchants believe that policy abuse significantly affects their bottom lines. In fact, the cost to process $100 of returned merchandise is estimated at $26.50, and Riskified’s survey suggests that this number is likely even higher.

The consequences of policy abuse are evident, as two-thirds of retailers admit they can recoup less than half of the total value of a returned item. However, despite the financial losses incurred, lenient return policies and promotional programs remain crucial for merchants. In fact, 93% of retailers believe that offering generous refund and return policies is essential for attracting new customers and retaining loyal ones, and 90% rely on promotions to drive sales and stay competitive.

Other significant findings from the report include the fact that 9 out of 10 online retailers face significant costs due to policy abuse. Furthermore, losses from policy abuse have been increasing year-over-year, with a 57% increase in costs from item-not-received abuse, a 45% increase in reseller abuse, a 38% increase in promotional code and loyalty program abuse, and a 37% increase in returns abuse.

Riskified’s data indicates that the motivation behind policy abuse stems from a combination of economic factors, such as inflation or holiday periods when consumers have stretched disposable income, as well as emotional factors, such as a negative customer experience with a retailer.

To compile the report, Riskified commissioned WBR Insights to interview over 300 leaders from online merchant organizations worldwide. These organizations, spanning various industries including fast fashion, sporting goods, food delivery, consumer electronics, and travel, reported at least $500 million in total annual revenue. The respondents, who hold director-level and above management positions, are responsible for fraud prevention, risk management, customer care, ecommerce, digital strategies, asset and loss protection, IT, payments, and finance.

Overall, the report highlights the pressing issue of policy abuse and its detrimental effects on merchants. As ecommerce continues to thrive, it is imperative for retailers to find effective solutions that strike a balance between customer satisfaction and protecting their bottom lines.

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