How to Reduce Fraudulent Returns on Shopify

by Daniel Raymond · April 9, 2025

Return Fraud is a growing issue that detrimentally impacts businesses and their ability to generate profit effectively. Here’s what you need to know to protect your eCommerce business.

Providing a convenient and pleasant customer experience and avoiding exploitation by people trying to take advantage can be challenging to balance. This article will explore the different ways scammers try to exploit eCommerce businesses and the practices you can implement to avoid becoming a victim of their schemes.

Types of Return Fraud You Should Be Aware of

Awareness of the types of return fraud that could happen to your business is vital for developing strategies to prevent it. Here are different ways scammers may try to exploit your return policy.

Receipt Fraud

Receipt fraud involves customers using stolen, forged, or altered receipts to return items and receive a refund for products that haven’t been legitimately purchased or are past the return date. These scammers are typically looking for cash or store credit, resulting in considerable financial loss for your business.

Credit Card Fraud

Scammers will use stolen credit cards to purchase an item with the intent to return it for a refund to their personal card. Excessive rates of credit card fraud will harm your business due to the costs associated with returns and refunds.

Wardrobing

Wardrobing is when a customer buys an item, uses it, and tries to return it. This is very common among clothing retailers because customers will typically buy an article of clothing for an event with the intention of returning it after the event is over.

Bricking

This is usually done with electronics and involves a customer buying a product, removing valuable pieces, and returning it as “defective.” Scammers will try to get a cash refund and sell the parts they have stolen from the product.

Switch Fraud

There are two types of switch fraud: Price and receipt switching. Price switching involves a customer buying a product at a lower cost, replacing it with a higher cost price tag, and returning it to profit from the difference. Receipt switching is a method involving using older or invalid receipts for an item that was legitimately purchased.

Employee Fraud

The most common types of employee fraud include shoplifting items with the intent to receive a cash refund and issuing invalid refunds for scammers they are working with. Employee fraud also has detrimental effects on business processes such as inventory management and profit loss.

Empty/Open Box Fraud

These types of fraud involve businesses that offer local delivery, such as meal delivery services. Once the scammer receives their product, they will file a complaint that their order is incomplete or missing. Scammers will often try to avoid liability by shifting the blame to the delivery driver.

Cross-retailer Returns

If your competitor is selling similar items at a lower price, scammers will purchase them with the intent to get a refund from your store to profit from the difference. Scammers understand that determining whether a product was purchased from your store can be difficult and will take the opportunity to exploit this.

Price Arbitrage

This involves a scammer purchasing a newer version of an item they currently own, placing the old item in the new packaging, and getting a refund for the price of the new product. They do this to get the latest product version for the cost of their old version.

Techniques and Practices to Prevent Return Fraud on Shopify

Implement Accurate Size Charts

Creating realistic expectations for your products reduces the overall amount of returns. It will also deter scammers from lying about how they aren’t satisfied with the fit of their item. Many of the sizing charts for Shopify offer size suggestions for customers to ensure the item will fit as expected.

Promote Exchanges Rather Than Cash Refunds

Cash refunds are the primary way scammers see profit. Encouraging customers to exchange their products for store credit, items of the same value, gift cards, or discount coupons is a great way to eliminate the incentive for cash profit while maintaining customer satisfaction.

Set Limitation Periods for Returns

Creating time limits for returns makes it difficult for scammers to return older products. This will address issues such as wardrobing and product switch fraud by reducing the amount of time a scammer has to exploit your business.

Ask for Identification

Recording your sales and requesting identification to initiate a return helps you keep track of your customers’ return habits. This keeps you aware of any suspicious transactions and verifies the scammer’s identity if charges need to be pressed. Requesting identification is crucial for protection against credit card fraud because it ensures the refund is issued to the original card, which can then be cross-examined with the ID.

Regularly Monitor and Record Sales and Return Data

Keeping track of your sales and return data is vital for becoming aware of suspicious activity. The data that should be monitored includes individual customers’ purchase history, return rate, dates and times of purchases or refunds, and contact information. Streamline data analysis by utilizing fraud detection software to examine the information for fraudulent practices and alert you to suspicious customers.

Implement Fraud Detection Software

Using fraud detection software to analyze your sales and return data can help you address return fraud before it happens. To protect you from fraud, Shopify offers programs such as Shopify Protect, which features chargeback protection and automatic coverage to minimize your loss to fraudulent transactions. Another program they offer is fraud analysis, which identifies high-risk orders, provides data-driven insights, and gathers evidence that can be used for disputed charges.

Inform Employees on How to Detect Fraud

Employees who are trained to detect fraud are a critical asset for preventing scammers from exploiting your business. Training involves ensuring your employees are aware of which red flags to look for when facilitating a return; this includes excessive return rates from individual customers, repetitive reasons for returns, forged or altered receipts, damaged or incorrect items, and frequent returns without the original payment method.

Key Takeaways

Reducing the rate of fraudulent returns is vital for your Shopify business. If you’re in a hurry, here are the main concepts discussed in this article.

The most common types of return fraud you should be aware of include receipt, credit card, switch, employee, and open box fraud, as well as wardrobing, bricking, cross-retailer returns, and price arbitrage.
Receipt fraud involves scammers forging receipts to return items that have not been legitimately purchased
Credit card fraud scammers use stolen cards to purchase items with the intent to receive a refund on their personal card
Wardrobing schemes involve customers purchasing an item to use and returning it when they are finished.
Bricking is typically done with electronics; a scammer will remove valuable components from a device, sell them, and return the product as if it were defective
Cross-retailer returns are a scheme where a customer will buy a product at a cheaper price from your competitor and return it to your store to receive a refund for the marked-up price
Price arbitrage involves purchasing a new version of an item you own and returning the old version in the new packaging

Tips and practices you can implement into your Shopify business to reduce fraudulent returns include implementing sizing charts, promoting alternatives to refunds such as exchanges for store credit, setting limitation periods for returns, requesting identification, regularly monitoring sales and return data, implementing fraud detection applications, and informing employees on how to detect and address fraud.