What Is Returns Fraud?
Returns fraud, sometimes called a refund scam, covers all dishonest practices designed to secure an undeserved refund. One common form is the false claim, where a buyer asserts that an order never arrived or that a non-existent fault has been found with the product. In other cases, fraudsters use stolen identities, making purchases under a hijacked profile and then requesting fake refunds. Particularly damaging is chargeback fraud, in which a customer receives the product but later disputes the transaction with their bank, claiming it was unauthorised.
Other schemes include returning a cheaper item in place of the original purchase or sending back an object of the same weight to fool logistics checks. Some even return high-quality counterfeits that are difficult to distinguish from genuine products, making verification extremely difficult for merchants.
Friendly Fraud and Chargeback Fraud
Not all fraudulent refunds involve stolen identities. Friendly fraud and chargeback fraud occur when a legitimate customer makes a genuine purchase with their own card, receives the product or service, but later disputes the payment to obtain a refund while keeping the goods. Sometimes this is intentional, while in other cases it stems from confusion or forgetfulness. The difficulty lies in the fact that the original transaction is legitimate, unlike traditional fraud that relies on stolen data. This makes detection and prevention especially complex.
Chargeback Fraud Statistics and Market Impact
Recent chargeback fraud statistics highlight the true scale of the issue for UK businesses. According to Fashion United, UK retailers lose around £1.3 billion every year due to returns fraud. Abuse rates, including refund scams and chargeback abuse, can account for as much as 15% of total returns in high-risk sectors such as apparel and footwear.
This financial impact makes returns fraud one of the most pressing challenges facing merchants today. Beyond direct losses, the rise in disputes and chargebacks increases administrative costs, undermines customer trust, and puts additional pressure on already thin retail margins.
The Rise of Wardrobing
Another common form of refund abuse is wardrobing. But what exactly is wardrobing? It refers to when a customer buys a product, uses it once, and then returns it for a full refund. This behaviour is particularly damaging for fashion and apparel retailers, since returned items can no longer be sold as new. The practice has grown alongside social media, where the pressure to appear in new outfits for events or photos drives some consumers to exploit generous return policies.
The Hidden Costs of Returns Fraud
The direct financial losses caused by returns fraud are only part of the problem. Each suspicious request requires staff to investigate, verify documents, and handle disputes, creating a heavy administrative burden. Reputation is also at stake, since fraudsters often retaliate with false negative reviews or misleading claims about customer service when their requests are denied. This not only harms a brand’s image but can also affect its search visibility and conversion rates.
To fight abuse, some merchants tighten their return policies, but this risks alienating genuine customers. The challenge is finding the right balance between protection and customer experience.
How to Reduce Chargebacks and Returns Fraud
To combat refund abuse, merchants need to act on several levels. Transparent return policies written in clear, accessible language help set expectations and discourage opportunistic fraud. Verification measures also matter: requiring delivery tracking numbers or photographic proof of defects strengthens your position. At the same time, monitoring suspicious behaviour enables faster responses.
Advanced fraud detection tools can analyse requests in real time, learning from past cases to flag anomalies and prevent abuse. As explained in our article on electronic payments, these technologies are increasingly part of a merchant’s essential fraud prevention toolkit.
The Role of Payment Service Providers
Your Payment Service Provider plays a key role in helping you manage returns abuse and reduce chargebacks. Monext combines proactive monitoring with expert human support to protect merchants at every stage of the transaction. By analysing behaviours in real time, anomalies can be identified before they turn into costly disputes. Dedicated teams also assist in setting fraud prevention rules tailored to each sector.
Our ticketing platform ensures efficient support, with average response times under four hours and guaranteed resolution in under five days. Thanks to this multi-layered approach, Monext recorded a fraud rate of just 0.03% in 2024, five times lower than the industry average.
Industry-Specific Risks
Each industry faces its own vulnerabilities. Fashion retailers must contend with wardrobing and counterfeit returns, while travel operators often face last-minute cancellation scams. Subscription services are frequently targeted by recurring chargeback abuse, and mobility companies encounter fraudulent refund requests for journeys that were in fact completed. By understanding the forms of returns fraud most common in their sector, merchants can adapt their strategies more effectively.
Building a Multi-Layered Defence
A strong anti-fraud strategy relies on multiple protective layers. At checkout, a secure and PCI DSS–compliant payment page reassures customers and makes fraudulent activity more difficult. During transactions, automated alerts can flag inconsistencies, such as mismatches between IP address and billing data. After transactions, close monitoring of refund requests helps merchants detect abuse early.
Conclusion: Protecting Your Business Against Returns Fraud
From chargeback abuse to wardrobing, returns fraud is one of the most urgent challenges in modern commerce. The goal is not only to block fraudsters but also to maintain a seamless experience for genuine customers. By combining transparent policies, strong verification, and advanced fraud detection, merchants can defend their businesses without losing trust.
Partnering with a specialist PSP like Monext provides the tools and support needed to prevent refund abuse and protect your growth.
Contact Monext today to learn how to safeguard your business and reduce the risks of refund scams.
