Borrowing a Netflix password? You’re part of a generation of customer frauds
You’d think it’s only criminal gangs committing fraud, but if you are returning clothes after wearing them or sharing your Netflix password with friends, you’re effectively doing the same, writes Martin Sweeney
It is tempting to think of fraud as a purely criminal endeavour – perpetrated by gangs or sophisticated malicious organisations. Few of us would expect family members, work colleagues, or friends to fall into this category.
But anyone who has falsely claimed a package never arrived, returned an item of clothing to the store after wearing it or shared a subscription has, in effect, committed fraud.
For ecommerce sites, which account for over a third of retail sales in the UK, customer fraud is becoming a big problem. According to a survey published recently, one third of finance leaders at online merchants now describe customer fraud as the number one risk factor facing their business. Only fraud from stolen payment cards – undeniably criminal – ranks higher.
The data on what motivations lie behind customer fraud are scant. Figures from fraud prevention body CIFAS reveal that it is heavily skewed towards younger people: one in seven adults between 18 and 34 have admitted to carrying out fraudulent acts, twice as many as the rest of the population.
Customer fraud is seen as a soft, victimless crime. Nobody gets hurt, the police won’t be called, and people believe businesses can afford to take the hit. Social media platforms like TikTok are groaning with simple how-to videos which make it look easy to earn ready cash by gaming returns policies or discount vouchers. Each new video or “scam bible” that appears on social media leads to an almost immediate uptick in fraud-like behaviour.
While it’s easy to paint the rise in customer fraud as a rational response to the cost-of-living crisis, the reality is murkier. People aren’t engaging in customer fraud out of necessity, but because the potential gains far outweigh the downsides.
Yet customer fraud is far from victimless, being extremely damaging for businesses but also bad for the economy itself.
It’s estimated that 10 per cent of returns are fraudulent. That’s many millions of pounds paid out in refunds, plus losses from merchandise that can’t be resold. It depresses profits, meaning companies have less to invest in staying competitive and growing. These losses inevitably end up being passed back to consumers through higher prices and more friction.
Responding effectively to fraud – whether from criminals or customers – places companies between a rock and a hard place. They must strike a continual balance between discouraging fraudsters and providing a great customer experience for everyone else. Become too lenient, and fraud increases; clamp down too hard, and sales will suffer.
Their stock response has been to throw money and resources at the problem. More than 80 per cent of the finance leaders polled in our survey expect fraud budgets and headcounts to increase this year.
However, more and more businesses are using machine learning tools to do the heavy lifting, leaving their human experts to handle exceptions, and keep the rest of the business abreast of the latest fraud trends.
But containing fraud can’t be done through tighter enforcement alone. We need a broader industry dialogue about the impacts of customer fraud – and its causes. As long as the “victims” of customer fraud remain silent, the problem will only continue to grow.