The Impact of E-Commerce Fraud for SMBs

With a mix of smart customer commerce and some human service, SMBs can survive this painful lesson as online retail becomes more mature.

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Back in the dark ages, before the rise of e-commerce, we used to be able to look the consumer and the product they were returning “in the eye” and make a decision on accepting that return. We could use all of our senses in the process.

Our biggest problems were whether or not the customer had a receipt, or if they had ‘worn’ that dress or shoes before returning.

In the e-commerce world, many returns are processed even before the item itself is returned. We can’t see or touch it. The return isn’t sense-able. And we’ve seen some retailers choose to just replace, and not even have the consumer send the original item back due to soaring transport and disposal expenses.

We’ve all heard horror stories such as consumers filling the packaging with bricks when ‘returning’ an item.

Yet return fraud is still only a problem wrapped in a mystery inside an enigma. 

Here are some horrifying statistics not to be read before going to bed:

  • Retail returns were over $740 billion in 2023.
  • Fraud is a growing percentage of overall returns - up to 13.7% of all returns in 2023 - as other reasons such as the wrong size are fixed by retailers with better websites.
  • The top 3 fraudulent return behaviors were wardrobing (using the item before return), returning stolen goods and returning goods paid for with a stolen credit card.

Of course, some of these behaviors can be managed downwards with tighter identification of the customer, better databases of stolen information, and post-return credits.

Big data will catch up with serial ‘returners’ and ‘fraudsters’ and they will find themselves locked out by companies who will be able to see their buyer rating in the future. In the short term, the whole returns issue is already biting consumers who’ve had somewhat of a free-for-all, fueled by the free return policies of the big companies in the past. No more, most companies are now removing free return offers, and charging consumers for returning items, and many will steer towards store credit if they can avoid refunds in the future.

In the past, the consumer who bought the goods had to invest time and money to take the return back to the store. Till now, a lot of the burden of an e-commerce return has been on the vendor. This pendulum will swing in the other direction as retailers try to avoid total business failure. The models of the past will not be the models of the future.

The market will never keep ahead of real criminal behavior seeking to defraud the system.

Beyond fraud, the physical cost of freight, postage, handling and replacement of goods is where the real pain is being felt by SMBs.

Often, the solution comes back to relationships and value. We know that customers will stay and be more loyal if they are serviced well. They’ll also leave if the service is poor.

An SMB should never seek to match the offers of huge corporations like Amazon or eBay. This is not sustainable and never has been for small business minnows, competing against big business whales. Even Amazon’s two-day shipping isn’t sustainable for Amazon – the ecommerce company makes up for it through ad revenue, among other things. It is just a new variation on the old behavior of trying to match prices at the supermarket when you run an organic fruit stand.

SMBs are the kings and queens of personal service, the original gangsters when it comes to knowing their customers. They must lean into that strength and stop trying to play the games of the goliaths that they will never win.

SMBs must initiate a customer-centric, or “customer commerce” attitude and business model, using single SaaS platforms that encourage seamless and personalized service as opposed to e-commerce platforms that rely on hundreds of integrations to perform a simple transaction. as a solution. Rather than needing dedicated time and employees to ensuring every integration is working properly, that manpower can be used to provide a more personal service to customers.

Better customer service brings more customers, helps you keep them, and ensures lifetime loyalty. Fraud is often a transactional-based mentality. A customer who loves a brand and continues to buy from them is less likely to defraud since they are engaged in ‘brand-loyalty’ and they want the business to survive so they can keep engaging with a favorite brand.

The pain of fraud caused by e-commerce might have a few tech solutions, but the real solution is leaning more to personal service, knowing your customer and developing a human connection of two-way respect that will see fraud die on the vine. Consumers are human, and they are far less likely to steal from or rip off a trusted “friend” than a nameless, faceless corporation.

Real criminals will steal from anyone, but hopefully, with a mix of smart customer commerce and some human service, SMBs can survive this painful lesson as online retail becomes more mature.