Advances in generative AI leading to a surge in false refund claims…

Retailers are facing a sharp increase in return fraud as shoppers and organised crime groups use generative AI to create convincing refund claims, it has emerged.

According to new findings from digital trust and fraud prevention specialist Forter, AI-powered damage claims are now the fastest-growing category of return fraud.

The company has warned that generous and flexible return policies are becoming a key target for abuse, with both individual consumers and organised groups exploiting weaknesses in retailers’ processes.

The growing availability of generative AI technology has made it easier to create fabricated evidence. Fraudsters can now alter receipts, generate realistic images of damaged products and produce convincing photographs of torn or defective clothing to support illegitimate refund requests.

Forter said criminal groups are using AI to build highly credible cases for compensation, ranging from fabricated damage reports to detailed claims that orders never arrived.

Some organised operations have gone a step further by commercialising the practice through so-called “returns-as-a-service” schemes. Under these arrangements, operators help customers obtain fraudulent refunds in exchange for a share of the proceeds.

The company said retailers are struggling to keep pace as fraud tactics evolve more rapidly than many traditional detection systems can handle. Product returns have become a particularly vulnerable area for businesses.

Forter’s research found that more than half (53%) of merchants have encountered “wardrobing” – a practice in which customers wear clothing before returning it for a refund.

The study also revealed that 30% of consumers admit to purchasing extra items solely to meet free-shipping thresholds, with the intention of returning those products later.

The financial burden is continuing to grow, with 44% of UK retailers reporting that returns and refund abuse are affecting their businesses.

It’s no surprise that the issue continues to rank among the top priorities discussed at Retail Risk conferences, where retailers share intelligence and best practice on tackling emerging threats. Information on upcoming dates and locations can be found on the Retail Risk website.