AI takes on return fraud as holiday returns surge

Data from Happy Returns, a UPS-owned reverse logistics company, shows that astir 1 successful each 10 retail returns successful the United States involves fraud. Retailers present suffer an estimated $76.5 cardinal a twelvemonth to the problem. 

To dilatory those losses, Happy Returns, which specializes successful boxless in-store returns for online purchases, is investigating a caller artificial quality instrumentality that flags fraudulent returns earlier refunds spell out.

Sign up for my FREE CyberGuy Report
Get my champion tech tips, urgent information alerts, and exclusive deals delivered consecutive to your inbox. Plus, you’ll get instant entree to my Ultimate Scam Survival Guide - escaped erstwhile you articulation my CYBERGUY.COM newsletter.

NEW IPHONE SCAM TRICKS OWNERS INTO GIVING PHONES AWAY

Return fraud is costing U.S. retailers billions, with astir 1 successful 10 returns flagged arsenic suspicious, according to information from Happy Returns. (Photo by Tim Boyle/Getty Images)

How instrumentality fraud works successful the existent world

Return fraud often looks harmless connected the surface. A shopper requests a refund for a morganatic item. Instead of sending backmost the existent product, they vessel thing cheaper, damaged oregon wholly different. Retailers often contented refunds earlier anyone inspects the item. That velocity allows fraud to gaffe done and drives up costs.

Industry information from Happy Returns and the National Retail Federation shows retailers volition grip astir $850 cardinal successful returned goods successful 2025, representing astir 16% of full retail sales. According to the aforesaid research, an estimated 9% of those returns are fraudulent. The study besides finds that galore shoppers admit to immoderate signifier of instrumentality argumentation abuse. Importantly, due to the fact that Happy Returns conducts in-person point verification and uses AI-powered automated flagging positive audit processes to drawback mismatches, the complaint of confirmed fraud successful its web is overmuch little than the industry-wide estimate. 

Why boxless returns changed the equation

Happy Returns operates astir 8,000 in-person instrumentality drop-off locations wrong stores specified arsenic Ulta Beauty and Staples, arsenic good arsenic astatine UPS locations. Shoppers tin instrumentality eligible items without a container oregon shipping label, and refunds are often issued rapidly aft verification. Like immoderate returns channel, fraud attempts tin happen, but in-person drop-off, point verification, ongoing flagging and audits assistance support confirmed fraud acold little than broader manufacture averages.

Happy Returns says its boxless, in-person exemplary already blocks galore communal fraud tactics, including bare boxes, partial returns and fake tracking numbers. "If you ne'er interaction the product, you can't really cognize what's being returned matches what was sold," the institution says. Everlane says that carnal handling unsocial acts arsenic a deterrent. "Just the information of knowing an idiosyncratic volition physically grip and verify the merchandise astatine the Return Bar deters fraudsters from adjacent attempting to perpetrate fraud," said Jim Green, manager of logistics and fulfillment astatine Everlane. 

Still, Happy Returns acknowledges that fraud tactics proceed to evolve. Lookalike products and knockoffs tin intimately lucifer the existent thing, making subtle differences hard to spot without adjacent inspection.

THE FAKE REFUND SCAM: WHY SCAMMERS LOVE HOLIDAY SHOPPERS

Happy Returns is investigating a caller artificial quality strategy designed to emblem fraudulent retail returns earlier refunds are issued. (Photo By Helen H. Richardson/The Denver Post via Getty Images)

How Return Vision uses AI to observe fraudulent returns

This vacation season, Happy Returns is piloting its caller AI strategy with prime retailers, including Everlane, Revolve and Under Armour, arsenic instrumentality volumes spike.

The caller AI instrumentality is called Return Vision. It starts moving the infinitesimal a shopper initiates a instrumentality online. The strategy looks for antithetic patterns crossed instrumentality timing, frequence and location. A azygous instrumentality whitethorn look mean connected its own. When those signals overlap successful suspicious ways, the instrumentality is flagged for reappraisal earlier a refund is issued.

At drop-off points, workers tin scan point barcodes and spot photos of what the point should look like. They tin cull evident mismatches connected the spot. Once returns scope Happy Returns hubs successful California, Pennsylvania and Mississippi, flagged packages are sent to quality auditors. The items are opened and photographed, including images of the front, backmost and identifying labels.

Those photos are fed backmost into the AI system, which compares them against authoritative merchandise images and past transaction data. Human teams reappraisal the AI appraisal and marque the last decision. The extremity is not automation alone. It is adding aggregate layers of reappraisal wherever fraud is harder to hide.

Early results amusement however effectual AI is astatine catching instrumentality fraud

While inactive successful pilot, Happy Returns says Return Vision is showing aboriginal results. Less than 1% of returns flowing done its web are flagged arsenic precocious risk. Of those flagged returns, astir 10% are yet confirmed arsenic fraud. The mean prevented nonaccomplishment per confirmed lawsuit is conscionable implicit $200. 

Happy Returns says the strategy focuses connected high-confidence cases, allowing astir shoppers to determination done returns without delay. The institution notes that the instrumentality does not code each signifier of abuse, specified arsenic wardrobing, erstwhile customers instrumentality worn items.

WHY YOUR HOLIDAY SHOPPING DATA NEEDS A CLEANUP NOW

Boxless, in-person returns are helping retailers chopped down connected communal fraud tactics similar bare boxes and fake tracking numbers. (Photographer: David Paul Morris/Bloomberg via Getty Images)

Why retailers are turning to AI to halt instrumentality fraud

Happy Returns is not unsocial successful turning to AI to halt instrumentality fraud. Amazon and FedEx some connection boxless returns and usage automated systems to emblem risky behavior. The U.S. Postal Service is rolling retired akin services. Across retail, 85% of surveyed merchants accidental they usage AI oregon instrumentality learning to combat fraud. Many accidental the results person been mixed. Happy Returns says combining behavioral signals with carnal merchandise verification helps adjacent gaps that data-only systems often miss.

Take my quiz: How harmless is your online security?

Think your devices and information are genuinely protected? Take this speedy quiz to spot wherever your integer habits stand. From passwords to Wi-Fi settings, you’ll get a personalized breakdown of what you’re doing close and what needs improvement. Take my Quiz here: Cyberguy.com.

CLICK HERE TO DOWNLOAD THE FOX NEWS APP

Kurt's cardinal takeaways

Retail returns person changed, and truthful has the fraud that comes with them. Easy drop-offs and instant refunds made beingness amended for shoppers, but they besides created caller vulnerabilities. Happy Returns is betting that AI, combined with hands-on inspection, tin extremity the equilibrium backmost toward retailers. Early results suggest it tin help, adjacent if it is not a cure-all. As fraudsters adapt, retailers are learning they person to accommodate faster.

Should retailers dilatory down instant refunds if it helps halt instrumentality fraud, oregon should convenience ever travel first? Let america cognize by penning to america at Cyberguy.com

Sign up for my FREE CyberGuy Report

Get my champion tech tips, urgent information alerts, and exclusive deals delivered consecutive to your inbox. Plus, you’ll get instant entree to my Ultimate Scam Survival Guide - escaped erstwhile you articulation my CYBERGUY.COM newsletter.

Copyright 2025 CyberGuy.com.  All rights reserved.