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Dec 5, 2025

Ecommerce Return Fraud: The Growing Threat and How to Shut It Down

Ecommerce Return Fraud: The Growing Threat and How to Shut It Down

Return fraud has quietly become one of the biggest margin drains in ecommerce.

What used to be a rare edge case — an empty box here, a swapped item there — has evolved into a sophisticated, multi-layered problem that hits revenue, operations, CX, and inventory health all at once.

Today, according to Two Boxes data,

Online return rates remain 3x higher than physical retail
44% of retailers say fraud and abuse are their top returns challenge
Apparel and footwear brands report 10%+ of returns are fraudulent
And 91% of retailers issue refunds before inspecting the item

All of this creates the perfect storm: a customer experience consumers expect to be seamless… and a backend operation that’s held together by trust, manual checks, and carrier tracking data that’s often wrong.

But here’s the good news: retailers and 3PLs are finally fighting back — with better visibility, better processes, and better technology.

This guide breaks down how.

What is return fraud?

Return fraud happens any time a shopper (or fraudster) manipulates the returns process to receive a refund, credit, or exchange they aren’t entitled to.

That includes:

Returning a different or cheaper item
Sending back heavily worn or damaged goods as “unused” (classic wardrobing)
Abusing return windows and return policies
Using fake or tampered return labels and tracking data to trigger auto-refunds (a form of receipt fraud)
Returning an empty box or box of unrelated objects
Shipping items back to themselves (return-to-sender scams)

For retailers, this is a CX, operational, and financial problem. It touches everything:

Customer experience (how fast and easy you make legitimate returns)
Inventory management (how much comes back as resellable vs written off)
Profitability (how much revenue is lost to fraudulent returns and refund fraud)

And behind the scenes, most of the chaos comes down to one thing: nobody really knows what’s true until an item is physically in the warehouse.

Which brings us to the biggest problem in modern returns.

The rise of ecommerce return fraud

As a retailer, returns come with the territory, especially online.

With online return volumes being three times higher than physical returns, having a returns process that works for both you and your customers is foundational.

If your process is clunky, customers won’t return. If it’s too loose, you’re often left holding the metaphorical (and sometimes literal) bag or drowning in a costly returns backlog.

With nearly half of retailers still handling returns in-house, operational headaches can quickly become a problem. Not to mention, a 2024 study found 15% of retail returns were fraudulent, proving this problem isn’t going away anytime soon – it’s only getting worse.

Why return fraud is getting worse for ecommerce

The returns experience is baked into how people shop online. Customers now consider easy product returns, free labels, and generous return windows to be a right. Meanwhile, brands are juggling:

Rising shipping and labour costs
Complex fulfillment and reverse logistics
Customers expecting an Amazon-like experience everywhere
Higher fraud sophistication and more organized fraud schemes

Balancing these challenges while maintaining a simple, free return process isn’t easy.

All of these pressure points lead to the same conclusion: return fraud isn’t a fringe annoyance anymore. It’s a fundamental profitability challenge.

And it’s hitting every industry, especially apparel and footwear:

56% of brands are at or above 30% return rates
91% are issuing refunds or exchanges before inspecting the returned item

By the end of 2025, total retail returns are projected to reach $849.9 billion, with an estimated 19.3% of ecommerce sales being sent back.

Not to mention, 45% of shoppers say it’s acceptable to sometimes “bend the truth” with returns, and many outright admit to having committed return fraud, including:

Sending back fewer items than received (21%)
Sending a decoy return (20%)
Tampering with the label or using a fake tracking ID (20%)
Sending back an empty box (18%)

Among Gen Z, these numbers nearly double.

Needless to say, ecommerce return fraud is prominent – as long as the loopholes exist, fraudsters, bad actors, and scammers will use them.

Return fraud and your bottom line

Retail return fraud is hurting everyone’s bottom line, and you can’t afford to ignore it. It can have an impact in many ways – some obvious, and some more subtle:

Direct financial losses: Every fraudulent return translates to lost revenue, shipping costs and often repacking/discarding costs too.
Operational strain: Processing fraudulent returns diverts valuable resources – time, personnel and logistics – away from legitimate business operations.
Inventory damage: Returned items may be damaged, used or substituted. This renders them unsellable and contributes to inventory shrinkage.
Reputational risk: Solutions to combat fraud must not alienate your legitimate customers. Balancing these priorities can be challenging and requires a nuanced approach.
Chargebacks and disputes: When the refund, return, and fraud flows are misaligned, chargebacks and disputes become more likely, especially when customers claim non-receipt of replacements or insist they returned items you never received.

Return fraud goes deeper than just a direct financial loss – it can impact every area of your business.

The most common types of return fraud

Return fraud can take a number of forms, ranging from simple to quite involved. The list is extensive, but some of the most common types of return fraud include:

Wardrobing (or “Rent-to-own”): A customer buys an item, uses it once, then returns it for a full refund. Classic examples include a dress for an event, a TV for the Super Bowl or a tool for a single project.
Bricking (or “Component fraud”): The customer returns a non-functional item, a cheaper replacement or a box filled with unrelated objects. Especially common in electronics, where components are removed before the rest is sent back.
Cross-retailer returns: An item bought from one retailer is returned to another, often without a receipt. Often happens in-store and online when policies are overly flexible.
Employee collusion: Internal employees collaborate with external scammers to process illegitimate returns or provide refunds for non-existent items.
Abusing the return policy: Customers repeatedly make purchases with the sole intent of returning them, usually to exploit lenient return windows or free return shipping.
“Empty box” returns: The customer claims an empty box was received and demands a refund or replacement – while keeping the item in question.
Price arbitrage/Price switching: The customer returns a higher-value item using a receipt for a lower-priced one, or swaps tags to manipulate pricing.

Understanding the forms that return fraud can take is the first step towards closing the loopholes.

So what do you do next?

How to prevent return fraud (without ruining your customer experience)

We get it – identifying and reducing all the types of return fraud can feel overwhelming, especially when you don’t want to ruin the experience for your honest customers in the process.

The goal of fraud prevention isn’t to punish everyone — it’s to separate legitimate returns from fraudulent activity, and to make it easier for good customers while making it harder for bad actors.

We’ve compiled six tips to prevent return fraud that can make things easier for you without adding unnecessary friction for your customers.

#1 - Tighten and tailor your return policies

The only upside to experiencing return fraud is that it can highlight the policy loopholes that allowed it to happen in the first place.

These loopholes are more common than you might think – 54% of retailers say that they deal with policy abuse, according to Two Boxes data.

Tightening your policies and tailoring them to the fraud you experience is one of the strongest ways to prevent future fraud:

Getting damaged or tampered goods back? Delay refunds until after inspection
Seeing a spike in suspicious returns from the same customers? Flag them for manual review going forward.
Noticing certain patterns with specific SKUs? Tighten that product’s return window or add more detailed condition requirements.

By adapting your policies to the specific types of fraud you encounter, you can tighten your process without creating headaches for your honest customers.

#2 - Stop refunding on delivery and move to refund-on-receipt

A “delivery” scan from a carrier doesn’t guarantee your warehouse has the package – especially with more sophisticated fraud like tampered labels and fraudulent tracking becoming more prevalent. Refunding on delivery just makes this type of fraud more difficult to combat.

Refunding on receipt rather than on delivery helps immensely with this. You're only refunding genuine returns you've actually received. While safer, we always recommend waiting to refund following inspection — ensuring that a return is eligible for a refund.

That’s where XRay from Two Boxes can help.

XRay works alongside the Two Boxes RMS to document returns upon receipt, prioritize them, and determine next steps – all with a single scan. Ultimately, providing you with strengthened fraud detection and greater operational efficiency.

#3 - Implement robust product tracking and identification

More insight into what you received – and when you’ve actually received it – means less opportunity for return fraud to sneak by your staff.

In theory, this might sound like a lot of manual work, but Two Boxes' RMA integrations make it incredibly easy. By integrating with Loop or other Returns Management Providers, you can:

Verify that the correct item was actually returned
Confirm it's the accurate SKU
Identify any mismatches between the received item and what was expected
Take photos and attach them to an RMA directly

This is all done super fast during inspection and can help lower fraud costs. You get better product tracking and identification without adding more steps to your workflow.

#4 - Give your warehouse guided SOPs and item-level visibility

Imagine building IKEA furniture with no instructions – or with 400 pages of them. Both don’t sound great, right? Now apply that same logic to your SOP.

A strong returns SOP should include:

A guided, digitized workflow
Simple, consistent grading options
Reference images for faster grading and less guesswork
Granular SKU visibility

Overcomplicating the process with a gigantic manual or overly detailed grading can lead to delays and let fraud slip through unnoticed.

Our work with Caraway shows the impact Two Boxes can have. The objectivity of our simple SOP enabled faster returns and less subjective return grading. This sped up processing and allowed them to identify fraudulent returns more easily.

This increased efficiency and transparency enabled Caraway to restock unused products and sell lightly used ones secondhand. With a much simpler workflow, their workers could easily investigate each return to determine resale viability – and catch fraud in the process.

With an easy-to-follow SOP and item-level visibility, fraud has nowhere to hide.

#5 - Partner with 3PLs that are returns experts – not just shippers

56% of retailers look for 3PL partners who can help prevent fraud and improve returns accuracy, but not every 3PL is well-versed in returns operations. While many have outbound operations well-oiled, few have made the same investments in their reverse processes. This can leave retailers exposed to fraud, less inventory returned to stock, and poor inventory health.

In our conversation with Matthew Hertz, co-founder of Third Person, he highlighted strategies for choosing the right 3PL match for your brand:

Evaluate a 3PL’s experience in your industry and how effectively they handle returns
Focus on how well their tech stack will integrate with yours to simplify the returns process
Ensure there’s personalized support between your team and theirs so you can adapt and adjust your returns process together

Two Boxes works with dozens of 3PLs, including Stord, Cart.com, Radial, and GoBolt, who prioritize returns accuracy, transparency, and fraud prevention. And demand for this is growing: 74% of apparel and footwear brands believe it’s important that their 3PL can effectively process returns, and 28% of brands claim they’d stop working with a 3PL over poor returns operations.

The right partner should strengthen your defenses against return fraud, not open new vulnerabilities.

#6 - Use returns data to redesign your fraud strategy over time

In case you haven’t noticed yet, data is essential.

Manual processing and less-structured returns processes make it almost impossible to identify trends in returns, customer data, and fraud data.

Without proper documentation, you’re missing out on crucial insights. Consider every return as a data point and an opportunity to strengthen your fraud strategy over time.

For example:

SKU-level insights: Identify products with a high fraud risk.
Faster and smarter workflows: Simplified SOPs can help teams spot anomalies or concerns faster.
Access to visual evidence: Having photos tied to each RMA provides proof for disputes and makes it easy to block repeat offenders.

Our work with Tecovas on Shipback – one of our fraud detection and mitigation features – is an excellent example of this in action. Pre-Shipback, receiving heavily damaged or flat-out wrong returns was a common occurrence for Tecovas, and fraudsters were getting refunded before inspection occurred.

To combat this, Tecovas supported us in developing Shipback. Now they can:

Quickly and easily block refunds for fraudulent or ineligible returns
Automatically ship ineligible returns back to customers
Capture and document photo evidence to easily explain to customers why a return was rejected
Build data on why a return was flagged to make process changes in the future

Don't let return fraud erode your hard-earned revenue

Return fraud is the biggest challenge for 44% of online retailers. It’s common, varied, and only growing more sophisticated.

By following the strategies we detailed above, you can reduce return fraud, strengthen your defenses, and stop throwing away your hard-earned revenue.

Of course, we’re here to help. Book a demo today, and let’s eliminate those pesky fraud costs for good.

Frequently asked questions

What ecommerce industries experience the most return fraud?

While e-commerce return fraud is prevalent across many industries, 56% of apparel and footwear brands are seeing 30%+ return rates – higher than the average of all ecommerce purchases.

What role should my 3PL play in helping me prevent fraud?

A good 3PL partner should be providing you with accurate returns processing, real-time visibility, item-level tracking, and alignment with your existing returns and fraud-prevention workflows. Don’t look for who just ships the fastest.

How important is customer communication in preventing return fraud?

Very. Clear, transparent communication about what qualifies as a valid return – with examples – reduces confusion and establishes boundaries. When shoppers know items will be inspected, fraud attempts often drop.