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Armchair Fraudsters – Impact of COVID-19 on “Friendly Fraud”

Working from home has become “the norm” for many of us, as COVID-19 forced the closures of traditional offices, people across the world moved into hastily converted kitchens, sheds, dining rooms and spare bedrooms to create homeworking spaces. In the UK alone nearly 70% of us are still working from home in some capacity, whether it’s on a full-time basis or during a split week.

At the same time there has been a marked increase in home deliveries and e-commerce. With more and more retailers and services moving online. From grocery stores to small and medium enterprises, retailers of all sizes are offering ‘straight to door’ services which reflect our new working practices. Indeed, demand has driven the provision of many of these new ‘takeaway’ offerings, with an increase of 32.4% in e-commerce users from 2019 to 2020, and online sales increasing by almost 50% during the same period.

Unfortunately, these ‘new normal’ trends have been matched by rises misuse and fraud, as fraudsters look to target new and potentially vulnerable channels. Sadly, the combination of increased remote working and e-commerce have also led more individuals trying their hand at fraud, giving rise to the latest fraud trend: Armchair Fraud.

Armchair Fraud is often used to categorize low effort, ‘friendly’ types of fraud, such as refund fraud, chargeback fraud, or delivery fraud, i.e.. areas that ordinary consumers can exploit from the comfort of their armchair.

One of the easiest – and most prevalent – forms of Armchair Fraud is refund fraud. There are a couple of branches of “refund fraud” – namely direct refund fraud and chargeback fraud (also known as friendly fraud). Direct refund fraud involves the end customer going directly to the retailer to request a refund. Whereas chargeback fraud sees the end customer requesting the card issuer refund the money, and the issuer then contacts the retailer requesting the funds.

Many fraudsters opt for the chargeback route when they are committing refund fraud, because it is often easier than dealing with the end merchant; but, unfortunately, this type of fraud is very costly for the retailer. Not only are they charged for the full product or service, but they are also liable for a chargeback fee and may need to pay the initial transaction processing costs. So, a chargeback of $10 could theoretically cost a merchant upwards of $15 by the time it has been completed, as opposed to a straight refund at the original product price.

How does this relate to a rise in Armchair Fraud? Put simply, it is becoming increasingly easy for anyone to commit this type of fraud remotely. Not just because many of us are now spending more time in the privacy of our own homes, away from prying eyes; but also, because more and more stores are providing online purchasing services without having rigid refund policies in place. Consumers are also looking to save money wherever they can – legally or otherwise.

One of the most common examples of this trend is returns fraud – also known as de-shopping or wardrobing. In its simplest form this when a consumer purchases an item of clothing that they intend to only wear once, and return it, claiming it was the wrong size or using another similar excuse. This type of fraud has been steadily rising, in part, because of social media, where users buy expensive items from online retailers, wear it once, share on social, and then return it.

Wardrobing has become such a problem in the last two years that one retailer has started reviewing the social media accounts of serial returners to check if they were wardrobing, and then blacklisting them. In 2019 alone wardrobing cost UK retailers £1.5 billion, with 43% of the 16-24 year olds interviewed in the same survey admitting that they often bought items with the intention of using them once and returning them. Clearly this is a growing trend amongst the “influencer” generation.

Sadly, ‘ordinary consumers’ are committing Armchair Fraud more often and it is becoming a major issue. 8 out of 10 merchants saw an increase in friendly fraud attacks (including chargeback or refund fraud) during the pandemic. With 94% stating this type of fraud was now a serious problem for their business. While only 50% of chargeback fraud offenders will attempt more than one refund request; this type of fraud targets mostly consumer facing (B2C) markets and brands, such as clothing, consumer electronics and household goods, which shows that Armchair Fraud is fast becoming the domain of the casual fraudster.

Another trend we are seeing is the rise in “professional refunders”. Namely individuals who will seek refunds on behalf of other consumers, while claiming a percentage of the total gains. Operating in more high value markets, professional refunders have driven an 80% increase in refund claims across electronic goods during the pandemic, for example. These fraudsters understand which retailers will request the product returned to them, and which do not, allowing consumers to purchase high value goods and then keep them, for no cost. Perpetrators of this type of fraud are almost always professionals – with high end websites, reviews, and references. Some even promoting “seasonal sales” for their services.

The question for retailers is “How to stop the latest types of fraud?”. In 2020 refund fraud cost the retail industry over $25 billion, and the cost is growing year on year. Responsibility starts with the retailers themselves – who need to ensure that their online services are covered by rigid and all-encompassing returns policies, which consider these new fraud trends. For example, retailers should always request the return of any item before they issue a refund, which would help to ensure that “professional refunders” are unable to carry out much of what they promise.

Retailers also need to use reputable delivery services. With many logistics companies now taking pictures of parcels that have been delivered in lieu of requesting a signature, which means that consumers cannot claim to have not received goods and receive a chargeback. Not just that, but some businesses have changed their return policies to require the logistics company to repackage the returned items themselves to make sure it is not just an empty box being returned.

Beyond returns policies and logistics management, it is important to have a fraud prevention service that can trace serial returners and chargeback patterns. Not just tracking names but keeping tabs on individual IP addresses and other factoring data. Email verification tools can help - highlighting common signs of fraud, like whether the email requesting the chargeback or refund was created in the last 24 hours (or less), prior to the purchase. A fit for purpose fraud prevention system will also ensure that you can track against seasonal differences and nuances. For example, with Christmas around the corner, the number of refunds might genuinely increase, but so too will the fraudulent ones.

The ability of retailers to blacklist or restrict the actions of certain users is crucial – as well as those that may ask for refunds to other accounts or from gift card purchases, as this is often a sign that the perpetrators are using stolen card details, especially if it is being done regularly.

Armchair Fraud is not something the fraud industry can afford to tackle sitting down – now is the time to stand up and act.


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