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GUEST COMMENT The policy paradox: How retailers are losing millions from paying customers 

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Eyal Elazar is policy abuse expert at Riskified 

The UK cost-of-living crisis has put pressure on consumers across the nation, with the rising price of essentials continuing to outpace the increase in average UK household incomes. Subsequently, there has been a growing rise in conversations around how consumers can spend less and save their money, with many consumers reassessing their shopping habits. 

Consequently, retailers are having to think outside the box to survive. Many are investing time in finding new strategies to entice and reward customers, ranging from promotional codes and discounts to gifts and referral bonuses. Yet a highly concerning consumer behaviour which is anticipated to increase rapidly over the coming months – and is set to jeopardise retailer revenue – is policy abuse. 

The 101 on policy abuse 

Policy abuse is a lesser-known consumer behaviour, but it is a troubling issue for online retailers. While online retailers take action to safeguard themselves from “bad actors” using stolen credentials, policy abuse occurs when regular, paying customers break a retailer’s terms and conditions.  

The consumer’s motive is often to save or make money. Policy abuse is not the same as traditional fraud but it has similar consequences for the retailer in terms of its potential for ruinous financial loss. The impact is often hard to quantify as its impact is far reaching – it can impact all parts of a retailer’s business ranging from legal to customer service to shipping and logistics. 

There are different formats of policy abuse. A common type is the misuse of sign up or promotional codes to access extra discounts. The prevalence of social media has made it incredibly easy for promotional codes to be used in ways which are beyond what the retailer originally intended. Anyone can create a new email account in a matter of seconds, so there is very little stopping someone from signing up multiple times to access a sign up promotion or even use a referral promotion to refer themselves under a different email address.

Another common type is connected to refunds and returns. Not only do retailers have to navigate the high cost of returns, alongside the growing number of genuine lost packages, but they must also manage customers who falsify return and refund claims. For example, a customer may contact a retailer to falsely report a missing item, triggering a refund or duplicate to be sent. Similarly, a customer could post a return to the retailer using an empty box (while keeping the original product) or send back used or worn items which is commonly referred to as ‘wardrobing.’ This trend is increasingly gaining traction on the dark web with organisations offering to manage the refund process in exchange for a small fee.  

There are also more advanced types of policy abuse, primarily related to reselling. This is highly prevalent for in-demand items such as concert tickets, the latest games consoles or designer and luxury items. An individual may choose to purchase many of these items (often through a variety of email addresses to overcome any retailer policies on limited purchases) and resell them to make a profit. The individuals involved may even consider it a full-time profession and income stream. 

 Preventing policy abuse 

There are multiple benefits to having a robust policy abuse prevention strategy that reach far beyond revenue retention. While it can reduce losses across refunds, logistics, merchandise and more, it can also increase online sales. Retailers with a vigorous policy abuse prevention strategy are better placed to provide their loyal and trusted customers with a more positive, frictionless experience overall.  

However, fighting policy abuse is extremely complex and difficult without the right tools and processes in place. Much like strategies for preventing traditional fraud, online retailers must find a balance between the customer experience and managing financial losses. If a customer makes 50 purchases and is suspected of committing policy abuse on only one item, the retailer may be more inclined to let it slide rather than investigate further and risk losing a loyal customer.  

On the other side of the coin, there is a sliding scale of consumer attitudes towards policy abuse, ranging from a lack of awareness to a lack of care if they perceive the retailer to be large and financially successful. Sadly, individuals who commit policy abuse can see it as an easy way to make money without entering conventional fraud that requires stolen credit card credentials.  

There are many fraud prevention solutions that typically focus on account or product-based rules at the checkout. However, the more sophisticated solutions use advanced technology to unmask data manipulation and fake accounts, to provide a holistic view of the true customer behaviour across the entire journey. This includes account creation, request for return authorisation, missing package claim, among others. The facility to connect data from the different customer interaction channels to uncover sophisticated abuse patterns and trends allows retailers to identify when policies are being abused and who is abusing them. With such a solution, retailers can prevent policy abuse without negatively impacting the shopping experience for loyal customers. 

It is vital that retailers get to grips with policy abuse to protect themselves over the festive season. If it is overlooked, online retailers can incur a frightening amount of lost revenue. With many customer service teams already struggling to cope with the volume of customer queries during this busy period, fraud prevention tools are a logical choice to spot the signs associated with policy abuse without increasing their team’s overall workload and risk inadvertently offending loyal customers. 

If retailers implement the right policy abuse strategy and get ahead of the curve, they are in a powerful position to retain and even increase their profits over a challenging festive season. With the right technology and data insights, retailers can reduce and – in many cases – prevent financial loss. 

Eyal Elazar is policy abuse expert at Riskified 

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