Curbing policy abuse to propel regional e-commerce

The region’s online scam crisis is deepening as many countries face a severe upswing in these fraudulent activities. For example, in February 2024, the Singapore Police Force (SPF) unveiled startling statistics in its latest report on scams and cybercrime. The figures were alarming: a 49.6% spike in scam incidents from the previous year, climbing to a staggering total of 50,376 cases. The majority of these scams target consumers on e-commerce platforms, eroding trust and leaving merchants and sellers to grapple with the reputational damage and drain on profits.

As it turns out, the challenge that merchants are facing is twofold.

On the one hand, shoppers are getting scammed through phishing, social engineering, and man-in-the-middle attacks. These scams impact a merchant’s brand and discourage repeat purchases, in turn affecting the bottom line.

However, there is another deeply ingrained type of scam that often goes unnoticed: the abuse of merchant sales policies and terms by both consumers and malicious actors. Such scams, termed policy abuse by the retail industry, occur when serial and professional fraudsters exploit returns, refunds, and promotions for their own gain.

It’s time for the e-commerce industry to recognise the impact of policy abuse on the bottom line and take back control by deploying technology such as AI and automation to fight fraud and boost revenue while still delivering a superior customer experience.

Manipulating retail terms and conditions – a lucrative opportunity for malicious actors 

Policy abuse takes place when company guidelines designed to enhance customer satisfaction and provide reliable service are exploited by bad actors.

For example, most local e-commerce players offer no-questions-asked 30-day returns as part of their policy. These generous return timelines and promotions are offered to attract and retain customers. Unfortunately, they often backfire.

Malicious actors looking to exploit this policy will engage in excessive returns or will return items such as clothing after having used them. Other common scams include refund fraud, where users falsely claim an item was not received, or misuse of coupon codes or loyalty rewards by opening multiple accounts.

Additionally, these fraudulent activities can also occur at an organised level, with groups systematically employing these strategies to obtain unjust financial benefits. A study by Riskified indicates that 90% of online retailers recognise policy abuse as a significant threat to their bottom line, leading to lost merchandise and increased operational burdens. For instance, the manual processing of returns and refunds is a productivity drain, taking most retailers 3-4 days to complete.

Tackling policy abuse is pivotal to e-commerce profitability and growth

By 2027, Southeast Asia is expected to boast 402 million digital consumers, as per a study by Parcel Monitor, driven by increasing internet penetration, a burgeoning middle class, and tech-savvy youth. This presents a ripe opportunity for retailers to expand outside their home country and into markets like Indonesia, the Philippines, Vietnam, and Thailand.

A strong foundation is necessary for e-commerce players looking to cement their position and expand into Southeast Asia. To be successful, merchants need to remain competitive with customer-friendly policies while managing financial losses from policy abuse.

This balancing act grows more complex across the region, where consumer behaviours and regulatory frameworks differ significantly. A strategy that’s effective in Singapore may not translate across other ASEAN countries due to cultural, economic, and regulatory differences.

Retailers must embrace a dual approach in tackling this challenge. First, they need to customise their customer engagement and policy strategies to align with each market’s unique characteristics, leveraging deep insights and localised tactics. Second, they must bolster their defences with fraud prevention systems.

Technological advancements, such as AI and machine learning, equip retailers with powerful tools to spot and prevent abuse. These systems can scrutinise customer behaviour patterns and highlight suspicious activities for review, helping to curb abuse while enhancing the customer experience.

Merchants can also enhance their approach to tackling policy abuse by leveraging machine learning clustering technology, which allows them to consider any additional accounts that are connected to a given customer. This helps merchants tackle fraud that arises from the same customer opening multiple accounts, for instance, to use a promotional code more than once.

By integrating these technologies throughout regional operations, retailers can foster a consistent and secure shopping environment, establishing their brand as both trustworthy and customer-centric.

Taking a proactive stance to bolster the e-commerce industry

The retail industry needs to take a proactive and collaborative approach to combating scams. A partnership model, featuring alliances with fraud and risk intelligence experts, will provide a foundation for developing sophisticated tools and strategies that enhance the security and integrity of online transactions.

In addition to deploying advanced technologies, ongoing education for both consumers and retailers is crucial. Awareness programs can cultivate a culture of vigilance and ethical behaviour, essential for minimising policy abuse. As Southeast Asia advances its digital transformation, the battle against policy abuse isn’t just about protecting businesses; it’s about ensuring a safe, trustworthy, and flourishing e-commerce environment.