New Zealand retailers may be affected by fraud more often than they think. While retailers are updating their technology and systems, fraudsters are continually finding a way to exploit these processes. They’re not just career criminals, either; fraudsters can be employees or present as regular customers.
In an environment where brick and mortar retailers are competing with online players, and the retail climate is harsh, retailers are continually juggling the implementation of extra controls and processes to fight fraud, with the experience and convenience for customers.
What is the definition of retail fraud?
Fraud is more complicated than the act of shoplifting or hacking into a system to take it down. Although there is no statutory definition of fraud in New Zealand, it relates to the deliberate practice of deception to receive an unfair, unjustified, and unlawful gain.
How troublesome is fraud in New Zealand?
In 2018, banking ombudsman Nicola Sladden noted that provisional data from the country’s banks suggested their customers were on track to lose approximately $70 million in fraud-related scams, but this was perhaps the tip of the iceberg: “The true scale of the losses may never be known.”
Types of retail fraud: Return fraud
Types of return fraud include:
- Returning stolen merchandise in exchange for cash or a gift card
- Obtaining a receipt to return an item stolen from in-store in exchange for cash
- Damaging stolen or in-store merchandise to justify a return under the Consumer Guarantees Act
- Wardrobing, where customers buy merchandise for short-term use with an intent to return it a short period later.
While the statistics of return fraud in New Zealand are unknown, retailers may be alarmed to know that in the United States, return fraud is a US$24 billion per year problem.
Employee return fraud
Turning to employee participation in return fraud, cashiers can also commit refund fraud by keeping receipts of customers and processing refunds for those transactions at a later point in time.
The PWC New Zealand 2018 report ‘Fraud out of the shadows’ notes that 58 percent of the time, an employee is driven to commit fraud because of opportunity, 25 percent due to rationalisation, and 17 percent for incentive/pressure.
Retailers need to be diligent in implementing processes and safeguards to catch out employees partaking in return fraud.
Credit and debit card fraud
Credit and debit card fraud is every retailer’s nightmare because, although the bank refunds the innocent cardholder, online retailers often bear the cost of the chargeback, leaving them out of pocket.
There is good news for retailers, as New Zealand banks are rolling out 3D 2.0 secured payment technology, where the payment gateway will conduct extra checks to check if a payment is legitimate. If a transaction has been approved through a 3D 2.0 secured website, the liability is transferred from the retailer to the bank for fraudulent transactions resulting in chargebacks.
Ways to eliminate return fraud
Talking to chief executive of Retail NZ, Greg Harford, he says that return fraud is a big issue. He recommends retailers be vigilant and have proper processes.
“The key way retailers can guard against this is to get receipts from people who are returning products in the first place.”
It seems that Kiwi cashiers can be relaxed when it comes to returns, with some accepting returns without receipts to avoid confrontation, or simply because they don’t care. It’s vital that retailers educate their staff to follow the correct processes, and that retailers can identify card numbers receiving repeat or large refunds. Electronic receipts connected to a customer’s store account can assist with monitoring signs of return fraud.
When discussing returns fraud with a Kiwi retail security software company, it was noted that Kiwi retailers have been slow to adopt technology that helps with identifying instances of return fraud. There is software in the United States, such as The Retail Equation, which Kiwi retailers have been reluctant to uptake. This software detects fraudulent and abusive behaviour at the POS by warning retailers when return transactions violate store policies or mimic excessive return behaviours, sometimes stopping a transaction.
The bottom line on fraud
As technology evolves, so do retailers, and with each new system, fraudsters find ways to exploit retailers. The struggle for retailers is to balance the treatment of customers with enforcing policies and checks to minimise fraud. A lack of reporting and statistics on fraud is perhaps part of the problem and is certainly needed to educate retailers better. Retail fraud contributes to loss in profit, and in today’s retail climate, retailers can certainly not afford to continue to reap the consequences.