Refund fraud could cost retailers £2.3bn annually, with scammers taking 30% cuts

Online retailers have long been plagued by serial returners eroding their profit margins, but a growing trend of customers or dedicated scammers committing refund fraud could be making that problem even worse.

The report maps out a hidden network where scammers, typically men aged between 14 and 30, offer to secure a refund on high-value products in exchange for a 13% to 30% fee.  

It is based on an analysis of 494,267 posts from cybercrime forums as well as the messaging app Telegram, with users active in countries such as USA, Canada and the UK. The authors estimate that 60,000 to 90,000 people may be involved in organised refund fraud. 

Amazon was the most-targeted retailer, but the scammers also regularly seek refunds from Apple, Nike and Uber Eats. 

Most of the posts extracted focused on North American retailers, but there were many queries asking about whether refunding was possible in the UK.

Some examples included: “What’s the score with Wayfair for UK? Item restrictions? Delivery, etc? Am after about a £1,000 worth, it’s a few items, ie: drawers, bed, etc”; and: “What fashion stores work in the UK? Just saw Asos is on hold.”

The £2.3bn figure is a median estimate based on applying the same rates to the UK as a 2024 Deloitte report that suggests refund fraud costs the US $103bn annually. In the report, the authors say that using this methodology, the range could sit between £317m and £5.76bn. 

“Generally, the UK does follow America,” says Professor Mark Button, one of the authors of the report and co-director of the centre for cybercrime and economic crime at the University of Portsmouth. “If we don’t do anything, then problem will just get a lot worse.”

Button says the dominant view expressed in the posts is that in moral terms, with big retailers like Amazon, “ripping them off is not really something you need to be concerned about”. 

How refund fraud works

How organised refund fraud typically works is that a client shares their log-in details with a scammer, who then initiates the refund on their client’s behalf.

The fraudsters had multiple means of obtaining a refund, most commonly saying an item did not arrive with a slight variation on that being a claim that a box received was missing some or all of them items intended for delivery. 

More sophisticated approaches include claiming the goods that arrived were faulty and then sending back empty boxes or ones filled with items that weigh the same as the original goods. Fake goods can also sometimes be sent back instead of the originals. 

“Retailers are very customer-focused and focused on speed,” says Button. “Obviously, they assume the bulk of their customers are not ripping them off.

“In some ways, a lot of these retailers are just too nice and people are exploiting their systems.”

A dangerous deal

The activity runs risks for both the original customer and their appointed scammer. The former has shared their login details, which they no longer control, and the scammer has no guarantee of getting paid their cut at the end of it. 

One vendor, called ‘Mr Krabs. Refund Store’, laid out the potential consequences if their clients failed to hold up their end of the bargain.

“If the service fee isn’t paid 24 hours after refund confirmation, it is going to increase by 10%, if the fee has not been paid 36 hours after refund confirmation, we will get the store to cancel the refund and rebill you. Moreover, we will get the store to file a PR (police report) against you, and a public dox of your information will be released,” they said.

AI playing a role

Retailers may also be facing a technology problem. Separate data released by digital fraud prevention specialist Forter suggests that 80% of fraud attacks on retailers now use AI. 

The company claims it recently stopped a $800,000 fraud ring, which was purchasing low-cost items from retailers, generating AI images of the products looking broken, netting instant refunds and keeping the products.

“Often it’s very, very hard for the retailer to see that something’s wrong, especially since it goes to some call centre, they’re not trained in detecting AI-doctored images, and they’ll just refund you, and you just got a pair of shoes for free,” Forter chief executive Michael Reitblat recently told the BBC’s Wake Up to Money radio show. 

In their recommendations for how to deal with the problem, the report’s authors call for an enhanced response from law enforcement as well as a centralised database so details of fraudsters can be shared between retailers.

Retailers should also strengthen their defences through approaches such as using AI to detect anomalies, they say, and an awareness campaign should be launched so young consumers, in particular, know that it is wrong.

“A lot of young people do it and they don’t think it’s really a crime,” says Button. “It is important to get the message across that this is a crime and you could go to prison.”