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, legitimate customers often commit policy abuse with accounts and purchase histories. In addition, customers who take advantage of flexible policies are frequently the source of abuse.

The problem is endemic and seems to be on the rise during pandemic lockdowns in the Australia and New Zealand region. The Australian Competition - Consumer Commission reports that online shopping scams totalled more than $62 million last year in Australia. The rise in Buy Now, Pay Later (BNPL) services in Australia has also exacerbated the problem of policy abuse, with fraudulent returns being made before the full payment cycle is complete.

The challenge for online retailers is striking the right balance when dealing with policy abuse. Being overly aggressive risks offending legitimate customers. But, on the other hand, being too flexible can result in substantial bottom-line losses, as these figures suggest. 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 typical 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 practise 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 behaviours cause online retailers to suffer losses in multiple ways – from wasted investment in gaining new customers to return merchandise that cannot be resold and must be written off.

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. Australia Post has measured a 27 per cent rise in online purchases when comparing September 2020 to September 2021. Also, their Inside Australian Online Shopping 2021 report suggests that 82 per cent of households shopped online in 2020.

The surge in order volumes also caused supply chain and last-mile delivery crunches during this time.
Amazon has recently begun offering its new Amazon Flex service, akin to Uber, whereby drivers can elect their working hours to a certain extent; Australia Post has added a Saturday morning postal run to their regular hours, too, in an effort to overcome backlogs.

Aside from long delays, these strains on fulfilment processes also cause missing deliveries, providing an avenue for false claims of lost packages to be camouflaged amongst legitimate ones. So it is no surprise that dishonest behaviours have seen a corresponding increase. A Forter study also found that nine out of ten firms have suffered policy abuse in the past 12 months, with promotion abuse the most common.

Take a new approach against policy abuse 

Many online retailers rely on traditional fraud solutions and internal review processes to address abuse-related losses. Unfortunately, because they are designed to identify fraudsters rather than customers abusing policies, these can be ineffective methods of addressing policy abuse.

Overly complex or stringent return policies, on the other hand, may turn away current or potential customers, as well as a lifetime of loyalty business. As a result, retailers walk a tightrope between managing policy violations 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 can begin 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. 

More importantly, with the right technology, retailers can automate and scale this process in tandem with their business expansion. As their eCommerce footprint expands, they will be able to offer policies to ensure a positive customer experience while also achieving the desired business outcomes.

Article by Forter ANZ country manager, Matt Humphries.