This startup can spot your refund scam

January 12, 2022 | By Vicki Hyman

For most of us, returns are a necessary evil following the holiday shopping season. That sweater from Mom, two sizes too small. The steam mop with scented solution — what exactly are you insinuating, pal?

But for some, returns are simply another way to game the system. These are the scammers that make it difficult for the rest of us and are costly for retailers. The lockdowns early in the pandemic led to a spike in e-commerce — a boon for retailers that also offered more opportunities to exploit generous return policies. Customers can claim they never received an item, or that the item arrived damaged. With wardrobing scams, a social media maven might order a designer handbag, use it once, snap a selfie, and then return it — or, worse, return a counterfeit item instead.

A more elaborate scam called “bricking” involves stripping an electronic item of valuable parts, then returning the item shrink-wrapped with its interior weighted with coins, batteries or stones so the employees handling the return won’t know the difference.

Last month, a Virginia man pleaded guilty to operating a mail fraud scheme and defrauding of more than $300,000 by buying high-end products — from a rare Fender Telecaster electric guitar to a home theater system to four $4,400 toilets with electric bidets — then claiming refunds and often returning similar but far less expensive items. (He kept the toilets.)

“It’s 21st-century shoplifting,” says Jack Bloomfield, an e-commerce veteran (at only 19) and the founder of Disputify, an Australian-based startup, whose platform helps retailers track, predict and prevent customer refund fraud.

$25.3 billion
The amount of fraudulent returns in the U.S. in 2020

Fraudulent returns like these cost U.S. retailers $25.3 billion a year, according to a January 2021 report by the National Retail Federation and Appriss Retail. That doesn’t include the cost of staffing return desks or the reputational risk of reselling used items or even "bricked" merchandise to unsuspecting customers. Those added costs can also raise the price of merchandise, so curbing fraudulent returns could save money for retailers and customers.

“In our highly digital world, how businesses handle the return process is just as important as the experience leading up to the purchase — and can have a sizeable impact on a company’s bottom line,” says Jason Howard, executive vice president of Ethoca, a Mastercard company that helps merchants prevent transaction disputes turning into chargebacks, a sometimes lengthy — and for merchants, costly — resolution process.

“Any merchant operating online needs to think of their fraud prevention strategy in 360 degrees, protecting themselves before, during and after a purchase is made," Howard says.

Online refund abuse is abetted by — you guessed it — the internet, where forums and even e-books on refunding schemes thrive. One website promises “1-on-1 support and mentorship” for newcomers to the “refunding scene,” and you can find scammers specializing in “refund as a service,” acting as a go-between in the fraudulent refund for a cut of the profit. 

Bloomfield launched Disputify nearly two years ago after raising close to $1 million in his first round of funding. Today, 400 merchants are signed up for its refund detection service. In December, the company joined Start Path, Mastercard’s startup engagement program and part of its Mastercard Developers portfolio, to work with the company’s fraud detection experts on ways to scale the startup — the more merchants in its network, the better the platform can spot offenders.


Early-age entrepreneur

The year before Bloomfield was born, his parents left their 9-to-5 jobs to open their own business, a tennis center in their hometown of Brisbane, Australia. The family lived above the tennis center and Bloomfield recalls their family dinners were routinely interrupted by the buzzer signaling someone was downstairs for a lesson.

“I knew that by seeing them build a business from the ground up, anything I wanted to start would take an extreme amount of grit and perseverance," he says.

By the time he was 8 years old, playtime meant building websites for his imaginary logistics business, complete with pricing guides. When he was 12, he started his own online business, pairing wholesale greeting cards with gift cards complete with customized messages (and when he realized they looked like a 12-year-old wrote them, he signed up for an online penmanship course).

His first real success story came at the age of 15, when he started an online dropshipping business, selling low-cost goods that would trend on a range of social media sites, including Facebook. That’s when he noticed a weakness in his business — people taking advantage of his return policy, claiming they hadn’t received the item and demanding a refund.

Bloomfield’s Disputify platform tracks, predicts and prevents these dishonest customers across the internet. The service intelligently scans transactions looking for costly patterns of customer behavior across its network of over 1 million orders. These insights are then returned to a merchant in seconds and can be used before the order is filled, or to understand the legitimacy of a customer’s return request based on their past behavior.

“This gives merchants the power to make informed, data-driven decisions and truly understand their customer before proceeding with an order or refund request,” he says. The service sits on top of a business’s existing fraud detection solutions and is simple to integrate securely with popular e-commerce platforms or via API.

To complement its loss prevention product, Disputify is also building a range of experiences that merchants can offer to its trusted customers to increase conversion rates, streamline the refund timeline and dramatically improve the customer experience post-purchase.

“I started Disputify because I saw a massive problem,” Bloomfield says. “Thanks to dishonest customers, merchants are enforcing harsh policies on customers who are trying to do the right thing. When we fix that, the experience of buying something online won’t look the same.”

Vicki Hyman, director, communications, Mastercard