Online fraud is rising, a costly problem for retailers, but AI and data-driven strategies can fight back.
As ecommerce sales continue to climb across the UK, retailers must account for the higher operational costs that come with deliveries and reverse logistics. Unfortunately, adding to the strain on profit margins, retailers are also witnessing a significant increase in online returns fraud and abuse.
Data from the Office for National Statistics (ONS) shows a 26% increase in consumer and retail fraud last year, with many instances occurring online. Part of the increase can be attributed to organised retail crime (ORC) groups targeting consumers online as well as taking advantage of retailer ecommerce systems.
In fact, the trouble of fraudulent returns has been pegged as a £1.3 billion problem, according to Retail Economics UK, and the British Retail Consortium has said abuse rates can reach 15% of total returns in some soft goods categories. Retailers can limit this damage by leveraging data analytics and GenAI capabilities that help close ecommerce loopholes and reduce incidents of online fraud and abuse.
Retail criminals are getting tech-savvy
Beyond the High Street, online retail is exploding. ONS reports online sales represent nearly 30% of retail sales, and with modern shopping comes modern fraud. AI is a tool that shoppers use to browse (and even buy) items, while retailers use it to enhance workflows, the supply chain, and accelerate marketing. Fraudsters, however, use it to dupe associates and online protocols.
No longer seeking out underground counterfeit shoppes, fraudsters use AI to create fake receipts, fake IDs, and false returns claims materials. They use AI to manipulate bar codes on packages so items get scanned in stores at lower prices and develop invoices that trick buy online, pickup in-store (BOPIS) transactions. Various criminals are even sharing tips on how to defraud retailers on apps like Telegram.
For retailers, the savvier fraudsters get, the tougher it is to catch them, putting an emphasis on using technology to fight technology.
Retailers leverage AI to fight fraud and abuse
AI models and GenAI capabilities can support retailers by identifying incidents of fraud before they get processed, linking incidents to ORC rings, assisting law enforcement, and more.
With online returns, for example, AI can analyse a transaction coming through the system and assist an ecommerce agent. AI reviews a consumer’s loyalty and shopping history and looks for anomalies in a return that could alert a retailer to a potential fraudulent transaction. AI could flag suspicious behaviours, like if multiple addresses or names are being used, or if that consumer has a history of buying items and quickly returning them, signalling a trend toward “wardrobing” or “renting” items.
Using GenAI, retailers can work directly with RFID tags and computer vision cameras to protect the supply chain. For instance, a loss prevention specialist can use GenAI and language models that are tailored to their business and run queries on products that are missing as well as link them to inventory being tracked through RFID tag data.
Loss prevention teams can also search a retailer’s data sets with GenAI, enabling teams to spot similarities between cases of fraud and abuse, potentially linking them to an ORC ring. Similarly, conversational queries and prompts can walk a loss prevention specialist through an investigation process to narrow in on an incident of fraud or abuse. It can also produce faster summaries of evidence to help police working on a case.
Data-driven results reduce fraud and abuse
Retailers have a significant amount of consumer and transaction data to sift through, but AI can help accelerate those searches and connections of online fraud and abuse. Having in-store and online data flowing to one place is a major benefit, aiding AI solutions in reviewing up-to-date data along the supply chain.
Retailers are facing increasing threats of abuse and fraud from consumers and retail criminals. Via online channels, false claims are rampant, with consumers claiming they bought an item, but it never arrived and seeking a reward. Fraudulent consumers also buy items like a TV, claiming it arrived damaged, and rather than sending it back, return a box filled with rocks.
Clearly, abuse and fraud can happen in many ways, but retailers need to track and tag incidents and use them to make their systems smarter. In turn, retailers can help reduce abuse and protect profits.
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Author:
Product at Appriss Retail.