Protecting Your Business from Retail Fraud
Fraud, as many of you merchants out there might understand, can be a big profit-drainer. In fact, according to a 2010 study conducted by online lexical database LexisNexis, retailers lost approximately $139 billion to fraud in 2010. Worse, in what LexisNexis calls the “true cost of fraud,” every $100 lost to fraud leads to $310 in total losses, as merchants scramble to replace lost or stolen items.
Additionally, the study found some other disturbing trends in retail fraud:
- Consumers are much less likely to do business with a merchant after being victimized by scammers. More than one in three consumer fraud victims said they will avoid certain merchants after being victimized, one in four report they will spend less money, and nearly one in three will switch payment methods.
- “Friendly fraud,” where a consumer buys an item and later disputes it, accounted for a fifth of fraud incidents affecting merchants.
- Mobile payments yield the highest volume of fraudulent transactions; yet almost two in five merchants said they planned to accept mobile charges in the future.
Some common theft tactics retailers should stay vigilant of include:
Return fraud: Returns are a favorite form of fraud, costing retailers $3.48 billion. Return fraud is carried out in many ways, including:
- Wardrobing, when consumers buy expensive items, such as televisions and fur coats, and then return the items after using them for holiday events. Profit losses from wardrobing can add up via chargebacks and shipping costs.
- Fraudulent returns using items purchased with stolen or bogus credit or debit cards.
- Cross-merchant, no-receipt returns.
The National Retail Foundation says retailers should shorten return periods and reject returns from frequent returners. To avoid card abuse, merchants should invest in fraud protection software and watch for suspicious orders.
Shipping fraud: Scam artists love express shipping because it’s harder for retailers to track purchases shipped in a day. Typically, the faster the thief gets a product, the harder it is to catch him. Monitor express shipping items and use address verification software. If it can’t verify an address, consider it a red flag.
To make a long story short, an investment in payment and security software can be highly effective in stopping retail fraud. So can old-fashioned monitoring. Fraud artists love traditional methods of separating merchants from their cash. Keep an eye on high-volume orders, especially for pricey products, like TVs and audio equipment, and transactions involving multiple credit cards for shipments to one address. Lastly, use caution when shipping to international addresses.