Insights to Help Your Business
How Merchants Can Safeguard Themselves from Fraud and Counterfeit Goods
Strategies and tools to combat return fraud and counterfeiting.
Fighting Return Fraud with AI and ML
Return fraud is on the rise, costing retailers a staggering $101.91 billion in 2023 – a 20% year-over-year increase. This alarming trend, highlighted in a recent UPS Capital report, paints a concerning picture for the rapidly growing eCommerce landscape.
The report reveals a double threat – return fraud and counterfeiting – posing major concerns for both consumers and merchants.
- Return Fraud is Rampant: 53% of merchants surveyed feel fraudulent return shipments have a significant impact on profitability. Nearly half suspect over 20% of their returns are fraudulent, and surveyed consumers share the sentiment as 32% believe return fraud is on the rise.
- Counterfeit is Climbing: 41% of consumers surveyed suspect counterfeit goods have increased recently with 23% of those surveyed having received a counterfeit when shopping online. Notably, Gen Z shoppers appear to be the most impacted, with 43% of respondents in this demographic having personally experienced counterfeit fraud.
The reason for this alarming trend may be a result of merchants lacking the tools to effectively combat fraud. Over 2-in-5 of those surveyed struggle the most with time-consuming manual verification processes. Others cite limited delivery visibility, lack of data, and pressure to maintain customer satisfaction as obstacles.
Strategies and Tools to Combat Fraud and Counterfeiting
Fraudsters and counterfeiters are constantly evolving their tactics, but there are several strategies and tools businesses can use to mitigate their risk.
Fighting Fraud
Artificial intelligence (AI) and machine learning (ML) can detect patterns and anomalies that signify fraud in real time to help retailers safeguard their customers, revenue, and reputation.
With anomaly detection, AI/ML algorithms can flag suspicious patterns in transactional data and differentiate between legitimate transactions and potentially fraudulent activities to identify risks instantly.
Additionally, predictive analytics scoring systems can help forecast shipping outcomes. For example, the DeliveryDefense® Address Confidence AI/ML model analyzes over 11 billion data points to identify patterns in shipping and delivery and assigns confidence scores (100 to 1000) to predict delivery success, with 100 indicating low confidence and 1000 high confidence. Merchants can utilize these scores to enhance safe delivery by adjusting their shipping strategies according to their risk tolerance, proactively identifying and mitigating fraud threats.
Another option to help minimize fraud is enabling Two-Factor Authentication (2FA) with online transactions to verify customer identities. This is quickly becoming a common practice and requires customers to provide two forms of verification, such as a password and a one-time code sent to their phone.
Countering Counterfeit
Radio Frequency Identification (RFID) tags can be embedded into products to help prevent counterfeiting. These scannable tags ensure products are genuine and traceable across the supply chain from the manufacturer to the retailer, adding an extra layer of precaution to ensure customers are getting the real deal.
When it comes to the shipping journey, anti-counterfeiting packaging can be used. Tamper-evident seals make it obvious to the customer if the product has been interfered with prior to physical delivery, helping verify product integrity. Plus, secure packing materials, such as holograms, watermarks, and other difficult-to-replicate materials, can be used in packaging to verify authenticity.
Proactive Protection
While the rise of fraud and counterfeiting presents a challenge for merchants, proactive loss prevention methods offer hope. It is crucial for merchants to take proactive measures to maintain brand loyalty and consumer trust. Embracing advanced AI tools for fraud detection, implementing robust customer authentication methods, and utilizing secure packaging and product tracking technologies, are essential steps to protect eCommerce businesses and their customers. Additionally, InsureShield® shipping insurance is always recommended to offer merchants peace of mind should any fraud or counterfeit risks slip through. Taking a proactive approach to safeguard orders and deliveries will foster continued growth and enhance consumer confidence in the ever-expanding world of online shopping.
