Fight Returns Management Fraud with Digital Receipts

By  Andrew Jacobs, vice president of business development, Matra Systems
According to the NRF, returns fraud costs U.S. retailers $11 billion per year. Retailers are busy preparing now for the upcoming holiday season - and the post season of holiday gift returns, in which roughly nine percent of gifts are returned after December 25 each year, creating huge potential for fraud. Therefore, it's a good time for retailers to examine both the challenges and the 'state-of-the-art' in returns management.

The best way to counteract fraudulent return activity, of course, is to know your customer and to establish a trust relationship. That may work for a high-end specialty boutique but it's all but impossible for large chain retailers. Receipts are useful if they're genuine, but it's all too easy to create fake receipts using easily accessible home PC technology and the Internet.

It's not as if nothing has been done to counteract returns fraud. A typical retailer's return validation process looks like this:

- When a customer returns an item with a paper receipt, the receipt identifier is scanned; the original transaction details are returned to the POS register; the item is returned to inventory and the 'open to return' is reduced. If done correctly, this can reduce fraudulent activity. Fake receipts simply do not work as easily if the original transaction can be retrieved and the item verified.

- With no receipt, the seemingly simple solution is to use a velocity check to monitor how many times this customer has been a non-receipted returner. However, this process is flawed - sometimes customers with the highest number of returns are indeed among your best customers.

There is a better way - the electronic or digital receipt. Paper receipts are archaic, insecure and increasingly unpopular. A more effective way to complete a non-receipted return is to convert it into a receipted return using original receipt lookup, or digital receipts. When receipts are available in a digital format, they can be retrieved on demand by sales associates, allowing them to correctly verify the merchandise that is being returned.

Digital receipts use search and identification parameters, such as transaction date/time, customer ID, or credit card number, to find the original transaction from the database. The search parameters index a digital receipt ID, the item is returned, and the return can securely be authorized.

Collecting an email address as the ID token to enable returns provides retailers with a secure key for original receipt lookup, and a more cost-effective and environmentally-friendly delivery mechanism for that receipt. (Stores use approximately 600,000 tons of thermal receipt paper each year. That's not only expensive, but it takes 15 trees to make a ton of paper - that's nine million trees per year.)

As the season of peak returns approaches, retailers should take a close look at their returns management and fraud prevention processes, keeping in mind that:

- Current, widespread returns management practices are inefficient at preventing fraudulent returns 

- Paper receipts are outdated and insecure.

- Digital receipts are the best way to reduce the incidence of fraudulent receipts or non-receipted returns. Using a secured lookup of original account number and the approximate transaction date/time sales associates and managers can recall receipts and transactions on demand.

- Digital receipts can help retailers both 'save green' and 'go green.' They're far more cost-effective and environmentally friendly.