Retail fraud is a multi-billion-dollar problem for U.S. retailers. Generally, e-commerce and omnichannel retailers focus on preventing chargeback-related fraud. However, with the growth of online shopping, e-commerce retailers should be turning their attention to another type of fraud with potentially far greater impact on the bottom line—merchandise order claim fraud.
Appriss® Retail’s experience and research show that merchandise order claims in the U.S. amount to $21 to $42 billion annually. While 90% of the order claims are legitimate, a full 10% are most likely fraudulent. If that figure sounds insignificant, consider this—the data shows that retailers are losing anywhere from $2.1 to $4.2 billion annually due to fraudulent claims.
Order claim vs. chargeback
When a consumer makes a merchandise order claim with a retailer, they deal directly with the retailer, offering the merchant a chance to resolve an issue and build a better relationship with the consumer.
On the other hand, a chargeback, where the consumer asks the credit-issuing bank to deny payment, leaves no room for the retailer to provide the consumer with a satisfactory resolution. The consumer is unhappy, and the retailer has most likely lost any possible future sales. No retailer wants consumers to resort to making a chargeback.
The retailer’s response is key
There are many reasons a consumer may file an order claim after making a purchase with an e-commerce retailer. Some of the most common are:
The item was damaged during delivery
Delivery was late, causing the consumer some hardship
The package was stolen after delivery
When a consumer files an order claim, a customer service representative (CSR) generally steps in to resolve the issue in accordance with company refund or reshipment guidelines. The two ways retailers resolve most merchandise claims are through:
Appeasement, where the consumer receives a credit for the item.
Reshipment of the product at no charge.
Since claims adjustments have a significant impact on a retailer’s bottom line, it’s imperative for e-commerce retailers to have procedures at the ready to identify the consumers who consistently make fraudulent claims that cause loss.
Retailers are in a difficult position when it comes to managing claims. Legitimate claims offer retailers an opportunity to build stronger relationships with consumers by taking responsibility for the issue and absorbing the loss. A positive claims interaction can turn a negative customer experience into a positive one and retain a valuable consumer. But retailers can’t afford to assume every claim is legitimate. Rewarding fraudulent claims will only encourage the behavior and make matters worse.
The challenge is that CSRs often don’t have the information and tools they need to determine if a claim might be fraudulent. While they probably have access to the data about the purchase that is the subject of the claim, they most likely don’t have the full picture of the consumer’s purchasing and return history.
Connecting the dots between the current purchases and prior orders, claims and other consumer data with that specific company, including in-store returns for omnichannel retailers, is vital to provide an informed response to the current claim. Retailers have the data; they just need the right technology to access it and put it to work. That’s where the power of artificial intelligence can help.
The Appriss Engage SaaS platform utilizes machine learning and artificial intelligence to help retailers analyze their data to be able to effectively manage order claims and minimize the impact of claims fraud.
Engage Claims Authorization. Utilizes AI models that predict fraud to provide a recommendation to the CSR to accept, warn, or deny a claim based on the consumer’s history and the retailer’s guidelines. Engage does the heavy lifting; CSRs retain control.
It uses Appriss Consumer Linking, a proprietary component of the Engage platform. Consumer Linking connects the dots across all online and in-store consumer transaction data with that retailer, analyzing tokenized credit/debit card information, email addresses, phone numbers, returns, IP addresses, loyalty card IDs, shopper accounts, gift cards, merchandise credits, ship-to addresses, bill-to names, billing addresses and more. The module identifies people who change components of their identity frequently and links the changed components to create a holistic, omnichannel view of a consumer’s shopping behavior.
Retailers must evolve to manage new intricacies of e-commerce consumer behaviors as the popularity of online shopping continues to grow. Performing sophisticated real-time analysis of existing data will allow you to give your CSRs the power to make informed decisions that retain valuable consumers while inhibiting fraudulent behaviors.
Want to learn more about order claim fraud and how to overcome it? Download the Order Claims: A Growing Source of Ecommerce Fraud white paper today!