Consumers are exploiting merchants’ returns process in record numbers, and the costs are adding up. A study of UK retail data found £29 million (over $38 million) in potentially fraudulent returns in just one year.
The report from returns firm ReBound Returns was based on analysis of one million retail returns from July 2025 to May 2026.
Extrapolated across the broader retail landscape, the financial impact on merchants can be substantial. For example, ReBound estimated that a mid-market fashion retailer with £100 million in annual sales, a 20% return rate, and a 5% fraud rate could lose £1 million annually to first-party fraud.
“Though these retail loss amounts are large, they don’t really surprise me,” said Jennifer Pitt, Senior Fraud Management Analyst at Javelin Strategy & Research. “Retailers often have a ‘always believe the customer’ attitude. While that works for good customers, allowing little to no friction for them, this lax stance allows fraudsters to thrive. Some retail chains have very lax return policies, even accepting returns for items they don’t even sell.”
Exploiting E-Commerce Loopholes
Customer-friendly return policies are designed to maximize a merchant’s e-commerce offering and improve the shopping experience. However, they have also created loopholes that some consumers exploit.
For instance, a shopper may purchase a suit for a special occasion and return it afterward. Others may falsely claim that a package was damaged or never delivered, allowing them to keep both the item and the refund.
Another reason first-party fraud is rising is that many consumers don’t view these activities as criminal behavior. Others justify fraud because of economic pressures. Compounding the problem, many incidents go undetected and unpunished, increasing the likelihood that offenders will repeat the behavior.
Finding Justification for Fraud
These characteristics of first-party fraud make it particularly difficult for merchants to identify and combat it. As fraud schemes become increasingly organized, proper categorization, detection, and communication are more important than ever.
“Retailers view each return separately and don’t always share information across different organizations,” Pitt said. “If fraudsters are committing retail fraud at one organization, they are likely doing the same thing at others. I’ve seen fraud rings that have gone undetected for several months because of the lack of visibility of fraud across organizations.”
This is one reason—though far from the only one—why so-called friendly fraud has become the world’s leading fraud vector and a growing pain point for merchants.
“Retail fraud doesn’t just affect organizations, it affects consumers too,” Pitt said. “By writing off large amounts of fraud, prices go up and consumers take their business elsewhere. And failing to identify retail fraud within a single organization will allow it to continue in other organizations.”
