Buyer scams have existed since the start of online retail. The rapid increase in ecommerce has been a boon for buyers because of increased competition and lower prices. With people increasingly making their purchases online, many sellers have noticed a disturbing rise in fraud. Not only do sellers have to deal with other seller fraud, but they also have to contend with buyer frauds and scams. A 2016 Business Insider article puts the cost of fraud at 1.47% of annual revenue. For small businesses selling items like electronics, even a few percent of fraud can be ruinous.
Fraud cost businesses in time and money, but attempts to mitigate such fraud can have consequences as well. Applications that screens suspicious transactions are not perfect, and any false decline results in losses of customers, revenue, and reputation.
Small businesses that sell on marketplaces like Amazon stand to lose a lot not only from successful buyer scams but also from the cost of having someone review transactions. And sellers who use services like Fulfillment by Amazon (FBA) have no way of screening transactions. Note: sellers can change the option to have Amazon move returned items to unfulfilled inventory. Sellers must abide by the rules of those marketplaces, and these rules increasingly favor buyers at the expense of sellers.
Below are some common scams that people use.
Item Not Received
Item not received (INR) is perhaps one of the more common scams. Buyers claim that they never received the package. Some sellers just refund the order and buyers keep the items. This scam has been in decline because more and more sellers are using shipping methods that include tracking. Still, for low-value items, the additional cost of tracking orders may be prohibitive. And buyers can always claim they never received the item (stolen) or that the signature is not theirs. Many Amazon A-to-Z claims often settle in favor of the buyer.
Items Not as Described
This scam involves buyers using the reason “Item not as described” to get free return shipping. While there are valid reasons why people return orders, some people abuse this policy. Amongst customers who buy clothing, this is a favorite reason. Sellers who don’t configure their Fulfillment by Amazon setting may find themselves having to deal with customers who have received used items sold as new. When buyers return used items, the seller can no longer resell it as new. For some categories like clothing, sellers can no longer sell the item since some marketplaces like Amazon don’t allow sales of used clothing or accessories.
Like the fraud above, another common scam is to return an item that is different, damaged, or even an empty box. In this scam, buyers just switch out their used or broken product for the new one they ordered. Or they put something else in the box with similar weight and return that. This particular scam is common with high-value consumer electronics. One common fraud in 2016 was buyers purchasing iPhones and returning clay or putting enough litter in the box to match the original shipping weight.
Credit Card Fraud
While this fraud is committed by someone other than the buyer, it’s important to note here. Poor cybersecurity has meant that potentially millions of people have had their personal information, including their credit cards, compromised and leaked online. Even major retailers like Target are not immune. Many credit card scammers purchase credit card numbers and personal information online. Then they attempt to use those credit cards to buy items and ship them to different addresses or intercept packages before homeowners return.
A chargeback happens when a buyer disputes a purchase. Chargebacks can be increasingly frustrating because they require that businesses prove the legitimacy of the transaction, costing time and money. If the credit card company finds in favor of the customer, then the store owner can be hit with additional fees or penalties.
Buyer scams have proliferated with the rise of ecommerce. The anonymity of the internet, the relative ease with which buyers can return an item, and policies that favor buyers all contribute to this increase. But that doesn’t mean that small businesses should prohibit returns–in fact, a generous return policy creates goodwill and customer confidence.
Unfortunately, there will always be buyer scams and fraud. As sellers adapt and more security tools arise, scammers will only find other ways to circumvent such systems. Returns and fraud hurt the seller’s performance metrics, and marketplaces like Amazon hold sellers to a high standard. These sellers feel compelled to reach a satisfactory resolution to maintain their ability to do business on Amazon even if that means losing an expensive item due to fraud. Buyers know this and capitalize on sellers.
All hope is not lost, however. If sellers keep on top of their customer service by taking good notes and pictures, then they have options available to them. By providing clear evidence like serial numbers of items sold compared and serial numbers of items returned, sellers have a good chance of appealing the returns process. Better yet, such evidence can be used to file claims of mail fraud against people who scam businesses using the postal system.
Ultimately, fraud hurts both buyers and sellers because it not only increases the cost of doing business, but it also raises the price for everyone else. Sellers aren’t immune from scamming customers and Amazon either. Honesty in the marketplace would benefit everyone, but a few people ruin the experience for everyone else.