Fighting Smart Against Policy Abuse in Online Retail

Many e-retailers rely on traditional fraud solutions and internal review processes to tackle abuse-related losses. Unfortunately, these can be ineffective ways to address policy abuse.
Fighting Smart Against Policy Abuse in Online Retail

Policy abuse plagues nearly every online business. The trouble with policy abuse, compared to conventional fraud, is that policy abusers are not necessarily cybercriminals who are hiding their identity. Instead, policy abuse is often committed by legitimate customers with accounts and purchase histories. In fact, abuse often stems from customers taking advantage of flexible policies.

The challenge for online retailers is striking the right balance when dealing with policy abuse. Being overly aggressive risks offending legitimate customers. Being too flexible can result in substantial bottom-line losses. 

The key lies in using the right tactics and technologies – which differ from those used against online fraud – to battle policy abuse. 

When Good Customers Misbehave

Policy abuse comes in many forms - a common example is returns abuse. Good customers sometimes take advantage of return policies, by ‘wardrobing’ an item, which means wearing it and then returning it. This practice is so common that global retailer ASOS announced a blacklist of serial returners in 2019. Customers might also re-purchase an item they previously bought, return the old item, and keep the new one.  

Other examples of policy abuse include promotions abuse (creating many accounts to use discount codes or coupons many times), or item not received abuse (claiming a purchased item never arrived). 

These abusive behaviors cause e-retailers to suffer losses in multiple ways – from wasted investment in gaining new customers to returned merchandise that cannot be resold and must be written off. 

A recent Forter study revealed that policy abuse costs retailers in the United States more than US$ 89 billion in annual revenue or 2.2 percent of revenue each year. 

More Policy Abuse During the Pandemic

During the pandemic, lockdowns, safe distancing measures, and personal safety concerns have caused many consumers to shift their purchases online. 

According to a report by Shopify 86 percent of Indian customers have adopted online shopping during the pandemic, it also shows an increase in the use of e-commerce across all age groups. Another report, ‘How India Shops Online’, by Bain in association with Flipkart showed that the Indian e-tail market has grown 25 percent despite lockdown.

The surge in order volumes also caused supply chain and last-mile delivery crunches during this time. 

Online grocery purchases also saw a huge rise during the pandemic. This is evident in BigBasket’s experience, the online grocery store had more than 283,000 orders a day during the lockdown. As a result of this, according to, the online grocery purchasing market has increased to over 70 percent as a result of the lockdown in India. 

Aside from long delays, these strains on fulfillment processes also caused missing deliveries, providing an avenue for false claims of lost packages to be camouflaged amongst legitimate ones. The Indian retail market is one of the largest in the world, with the quick uptake of digital has had a matching growth in fraud and policy abuse. 

It is no surprise that dishonest behaviors have seen a corresponding increase. The Forter study also found that nine out of ten firms have suffered policy abuse in the past 12 months, with promotion abuse being the most common.

Take a New Approach Against Policy Abuse 

Many e-retailers rely on traditional fraud solutions and internal review processes to tackle abuse-related losses. Unfortunately, these can be ineffective ways to address policy abuse as they are designed to identify fraudsters, not customers abusing policies. 

At the same time, overly complex or strict return policies can turn away current or potential customers, and possibly a lifetime of loyalty business. Retailers must tread a fine line between managing policy abuse and maintaining strong customer relationships.

The smart approach to policy abuse starts by understanding the types and magnitude of abuse faced. With that insight, online retailers need to adopt technologies that actively identify repeat abusers who are taking advantage of policies. The right technology will be able to identify:

●    Promotions Abuse: Limiting discounts and coupons to a single-use per identity. 
●    Item Not Received (INR) Abuse: Adjusting policies in real-time to require repeat offenders to sign for the delivery.
●    Returns Abuse: Updating policies to allow these shoppers to buy items on ‘final sale’, without the option of return. 
●    Reseller Abuse: Identify and block resellers that would otherwise purchase products (typically in volume) for resale without approval. 

Importantly, the right technology means this can be done automatically and at scale. So, as the e-commerce footprint of retailers grows, they can maintain policies that ensure a positive customer experience and the right business outcomes. 

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