Insights to Help Your Business

How to Prevent Return Fraud

Understand what return fraud is and how to protect yourself from it. Learn how to identify different types of return theft and effective strategies you can use.

Reducing the Risk of Returns Fraud

UK retailers lose an estimated $2.6 billion annually to return policy abuse, including practices like wardrobing (wear and return) and false non-delivery claims .

With online shopping at an all-time high, especially during the festive season, many businesses offer flexible return policies to enhance customer convenience. While these policies improve the shopping experience, they can also be exploited by fraudsters.

To stay ahead, e-commerce businesses are implementing stronger measures to prevent fraudulent returns without compromising customer satisfaction.
In this article, we’ll explore what returns fraud is and practical strategies to reduce the risk for your business.

Key Takeaways

Review your returns policy to eliminate loopholes. Implement tamper-evident packaging to prevent product swaps. Invest in staff training so your team can identify suspicious patterns early.

Defining Returns Fraud

Returns fraud, sometimes referred to as refund fraud or refund theft, occurs when an individual purchases an item and deliberately attempts to return it dishonestly. The aim is typically to obtain a refund, store credit, or an exchange by exploiting weaknesses in a retailer’s returns policy.

It’s important to note that the vast majority of customers use return processes legitimately – for example, returning clothing that doesn’t fit or items that don’t meet expectations. However, a small number of bad actors intentionally manipulate return and refund policies for financial gain, creating challenges for retailers seeking to balance customer service with fraud prevention.

However, a small number of bad actors intentionally manipulate return and refund policies for financial gain, creating challenges for retailers seeking to balance customer service with fraud prevention.

The State of Returns Fraud

Illegitimate returns continue to rise with UK retailers losing an estimated £1.3 billion each year to returns fraud[1]. With many businesses offering lenient return policies to improve customer satisfaction, the likelihood of experiencing fraudulent returns has increased. For many retailers, returns fraud has become an unavoidable operational risk rather than an isolated issue.

Different types of returns fraud are contributing to these losses. Wardrobing remains one of the most common forms, with a significant proportion of consumers admitting to the practice. Other behaviours, such as returning items without intending to pay for them, further underline the scale of the challenge. Together, these trends highlight how widespread returns fraud has become and reinforce the need for businesses to take proactive steps to reduce fraud risk, while maintaining a positive customer experience.

Types of return fraud

The rise of online shopping and generous returns policies has made returns more convenient for customers, but it has also created opportunities for returns fraud. In some cases, these policies are exploited by individuals seeking to illegally profit at a retailer’s expense.

Today, refund fraud takes many forms. Fraudsters may use a range of tactics to secure refunds, store credit, or replacement items without returning products as intended. Understanding the most common types of fraudulent return schemes can help businesses identify vulnerabilities and take steps to reduce their exposure.

Below are some of the most common tactics used in returns fraud:

The Empty Box Scam
Reciept Fraud
Switching Fraud
Bricking Fraud
Wardrobing Fraud

empty box

One common tactic involves returning an empty box. In these cases, an item is sent back with packaging materials to give the impression that the original product has been returned. Parcels are usually weighed at dispatch, keeping accurate shipment data, including weight can help businesses verify whether the returned package matches the original.

Another variation occurs when a customer claims a parcel arrived empty, alleging that the contents were missing on delivery or removed during transit. Tracking the parcel’s weight at each stage of its journey can be valuable when investigating these claims and determining whether further review is required.

To help prevent fraudulent returns, businesses should always inspect returned items before issuing a refund. Verifying that the contents match the original product can reduce exposure to this type of refund fraud and support a fair, consistent returns process.

reciept paper

Receipt fraud happens when receipts are misused to obtain refunds or store credit dishonestly. This type of refund fraud can take several forms and often exploits gaps in in-store or online returns processes.

Fake or stolen receipts: In some cases, a falsified or stolen receipt is used to attempt a return.
Stolen items returned with a legitimate receipt: Another method involves returning a stolen item with a genuine receipt.

To help prevent receipt fraud, retailers can review receipts carefully, use transaction validation systems, and apply consistent returns verification procedures before issuing refunds.

opening package &

Switching fraud is where the item sent back is not the original product shipped. Instead, the returned item has been deliberately substituted to obtain a refund or store credit while keeping the original item.

Switching with a counterfeit or substitute item: In this scenario, an individual returns a counterfeit product or a different item that closely resembles the original. The aim is to pass it off as genuine while retaining the authentic product. Designer clothing, footwear, and branded goods are frequent targets due to their higher resale value.
Price switching: This tactic involves swapping price labels on products so that, when returned, the item appears to have a higher original purchase value. The refund is then issued for an inflated amount, often before the discrepancy is identified.

Carefully inspecting returned items, verifying serial numbers or product identifiers, and reviewing pricing data can help retailers reduce switching fraud risk and limit losses linked to fraudulent returns.

smartphone open case

Items are deliberately damaged or tampered after purchase and then claiming it arrived faulty. The goal is to obtain a refund or replacement while returning a product that is now unusable and no longer suitable for resale.

This tactic is commonly associated with electronic goods. In some cases, valuable internal components are removed from devices before the outer casing is returned, leaving retailers with a non‑functional product that appears externally intact.

Detecting this form of refund fraud can be challenging, but carefully assessing the condition of returned items, checking serial numbers, and testing electronics before issuing refunds can help businesses reduce the risk of bricking fraud and limit losses to fraudulent returns.

wardrobe

Wardrobing fraud occurs when an item is purchased with the intention of using it temporarily and then returning it within the permitted return window. This practice is commonly associated with clothing and footwear, particularly higher‑value or designer items that are worn once and then returned for a full refund.

While some individuals may view wardrobing as a harmless way to access premium products without long‑term commitment, it still constitutes a form of returns fraud. For retailers, worn items are often difficult or impossible to resell at full value, contributing to increased costs and operational challenges. Monitoring item condition on return and setting clear expectations within a returns policy can help businesses reduce the risk of wardrobing fraud.

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All solutions for return fraud

Reducing returns fraud requires a layered approach. While no single measure will eliminate risk entirely, combining clear policies, operational controls, and staff awareness can significantly reduce exposure without compromising on customer experience.

Clear return policies

A clearly defined returns policy helps set expectations and reduces opportunities for abuse. Customers should understand exactly what can be returned, in what condition, and within what timeframe. Shorter return windows can help limit misuse, while still allowing flexibility for legitimate returns. Some retailers also apply dynamic return rules based on customer history. Repeated claims relating to non‑receipt, incorrect items, or damage from the same address or customer may indicate suspicious patterns that warrant closer review.

Use Tamper-Evident Packaging

Tamper‑evident packaging can help deter fraud and reduce disputed claims involving allegedly empty or altered packages. For higher‑value items, some businesses use holographic seals, serialised labels, or branded security tape. These features are difficult to replicate and cannot be removed without visible damage, helping to verify whether a returned item remains in its original condition.

Know how to spot Returns Fraud

Understanding common returns fraud tactics enables businesses to identify risks earlier in the returns process. Providing staff with training on warning signs, such as inconsistent claims, missing components, or mismatched packaging, can make a meaningful difference. For high‑value goods, implementing structured inspection procedures can help detect counterfeit substitutions, missing parts, or signs of prior use before refunds are issued.

Restocking fee introduction

While free returns can improve customer satisfaction, they may also increase return policy abuse. Requiring customers to cover return shipping, or applying a restocking fee in appropriate cases, can discourage misuse and make fraudulent returns less attractive. This approach can be particularly effective in reducing wardrobing fraud, where items are purchased for short‑term use and then returned.

Exercise the right to refuse returns

The right to refuse returns for items that are not in new or resaleable condition is not new. Items reported as faulty or incorrectly described should still be handled fairly, but careful inspection before issuing refunds is essential. Applying consistent standards across all returns supports fairness while limiting fraudulent activity.

Use tracking and address verification

Sending parcels via tracked delivery helps verify whether items were successfully delivered. Delivery confirmation, such as photographs, scans and signature, can be useful when handling claims involving non‑receipt or disputed deliveries. Verifying shipping addresses and monitoring repeated delivery disputes at the same locations can also help identify potential risk patterns.

Consider third-party authentication service

For some small to medium‑sized businesses, thoroughly verifying high‑value returns can be time‑intensive. Third‑party authentication services can help validate the legitimacy of returned goods, particularly in sectors such as designer apparel, luxury accessories, and high‑end electronics. Independent verification can reduce the risk of counterfeit returns and support more confident refund decisions.

Protect against risks to your parcels with InsureShield

Protect against risks to your parcels with InsureShield

InsureShield offers shipping insurance solutions to help businesses manage risks end-to-end. By supporting protection of goods in transit, InsureShield can form part of a broader risk‑management approach for businesses that rely on shipping to operate.

Businesses can benefit from:

Coverage for shipping‑related risks, including loss and damage during transit.
A streamlined claims process designed to help minimise disruption.
Flexibility to align insurance solutions with specific shipping needs and multi-carriers, not just UPS.

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