Tips for protecting your business from retail fraud

Tips for protecting your business from retail fraud

Fraud can be a huge profit-drainer for merchants. According to a 2010 study by LexisNexis, retailers lost $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.

Some other key takeaways from the LexisNexis study:

• Consumers are significantly 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 almost one in three will switch payment methods.
• "Friendly fraud" -- where a consumer buys an item and then later disputes it -- accounted for a fifth of fraud incidents affecting merchants.
• Mobile payments yield the highest volume of fraudulent transactions; yet almost four in 10 merchants said they planned to accept mobile charges in the future.

"Fraud continues to be a $100 billion problem for retail merchants," said Jim Rice, director of Market Planning for Retail and E-Commerce Markets, LexisNexis in a press release. "While the total cost of fraud has gone down since last year, retailers still lose more than three dollars for every one dollar lost due to a fraudulent transaction, and online or mobile fraud is a growing threat."

Some of the most common schemes retailers should watch out for include:

Return fraud: Purchase returns are a favorite form of fraud, hitting retailers in the pocketbook to the tune of $3.48 billion. Return fraud can occur in a variety of forms, including:

• Wardrobing. This occurs when consumers buy big-ticket 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 quickly due to chargebacks and shipping costs.
• Fraudulent returns using items purchased with stolen or bogus credit or debit cards.
• Cross-merchant, no-receipt returns.

Tip: The National Retail Foundation says retailers should shorten return periods and reject returns from "chronic" returners. In addition, to avoid card abuse, merchants should invest in fraud protection software and keep a keen eye out for "suspicious" orders.

Shipping fraud: Scam artists love express shipping because it's more difficult for retailers to track purchases shipped in a day or two. In general, the quicker a crook gets a product, the harder it is to catch him (or her).

Tip: Monitor express shipping items closely using address verification software. If the software can't verify an address, consider it a red flag.

The bottom line: An investment in payment and Web security software can go a long way in stopping retail fraud. So can old-fashioned monitoring.

Fraud artists love "tried and true" methods of separating merchants from their cash. Make sure you keep a close watch on high-volume orders, particularly for big-ticket items, such as TVs and audio equipment, as well as transactions where multiple credit cards are used for shipments to one address. Also exercise caution when orders have international shipping addresses.  

Published: December 2,2023