Taking advantage of online sales is easy, particularly if all that is required to get first-time customer discounts is a different email address. This may seem discreet since one will never have to talk to anyone about doing so.
Although this "friendly fraud" may not seem like much to the average person, it may add up to a significant amount for businesses. When added to other types of fraud, however, the annual cost to retailers is above $100 billion, as reported by the latest study released by Riskified on Thursday, September 14.
'Friendly Fraud' May Not Be as Harmless as It Sounds
Major retailers, including Wayfair, Peloton, Revolve, and Canada Goose, employ Riskified's artificial intelligence (AI) and automated tools to combat fraud and increase sales. The research examined more than 300 multinational corporations with yearly revenues of at least $500 million.
The company's research shows that violations of retailers' policies, including return fraud and the use of fake email addresses to redeem discount coupons, are on the rise. During the holidays or periods of high inflation, the practices often increase.
According to Riskified's survey, almost 90% of businesses cited customer loyalty and sales growth as the top two reasons they provide refunds, return policies, and rewards. While retailers are facing high prices, growing shrink, and a downturn in discretionary spending, the abuse of such programs is proving to be a big drain on revenues, prompting some to reconsider granting such freebies.
Riskified CEO Eido Gal said that merchants have been more focused on this issue over the last two years, in part because of their increased focus on profitability.
A study finds that $100 billion is lost annually by retailers due to return fraud, bots, and coupon stacking. During the holidays or periods of high inflation, the practices often increase.
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Exploiting Loopholes in the System
Friendly fraud may be seen as an inevitable part of the customer acquisition process for certain companies.
Retail fraud consists of a wide range of actions, from using various email accounts to take advantage of deals multiple times to making multiple purchases with the goal of returning the majority of them.
According to the research, however, professional and repeat fraudsters are taking advantage of these loopholes.
A CNBC source named "Robert," for instance, has taken the edge of a Black Friday Hulu bargain every year for the last three years, using a new email account each time. This year's campaign offered new consumers a yearlong membership for only $1.99 per month rather than the typical $7.99 per month.
"I really don't have empathy for a major company. I genuinely just don't care," he told CNBC in an interview. With this practice, he said, "You're never actually going to have to speak to anyone about it and there's really no accountability, so, why not do it?"
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