Returns are a standard part of retail, but they’re not without risks. Fraudulent returns can cost businesses a significant amount of losses annually. While restricting returns might seem like the only way to fight against retail fraud, there are better ways to help reduce fraud losses that don’t sacrifice the customer experience. 

Leveraging an advanced voice biometrics analysis solution can help protect customer accounts, spot fraudulent returns, and streamline the call experience. This article will explore the types of return fraud and how to combat it with advanced voice security.

Understanding return fraud

Return fraud involves customers exploiting return policies for personal gain. It comes in various forms, from returning stolen items to abusing liberal return policies. 

According to the National Retail Federation, return fraud costs billions annually and contributes to operational inefficiencies. Retailers often face challenges balancing customer satisfaction with fraud detection.

The most common types of fraud in retail include:

  • Receipt fraud: Customers use fake receipts or receipts from other items to return merchandise
  • Wardrobing: Buying an item, using it briefly, and returning it as “new”
  • Stolen goods returns: Returning stolen goods for refunds or store credits
  • Refund fraud: Manipulating the system to receive more than the value of the returned item

What is voice biometrics in retail?

Voice biometrics is a technology that identifies individuals based on unique vocal characteristics. It analyzes various features of a person’s voice, such as pitch, tone, and rhythm.

This technology can help protect retail contact centers from refund fraud, offering a secure and efficient means of verifying customer voices during transactions, including returns.

Unlike traditional authentication methods, such as passwords, voice biometrics provide an additional layer of security by leveraging something inherently unique to each individual—their voice. When used in tandem with other authentication factors, this advanced technology can assist retailers in combating fraudulent returns while helping create a faster and simpler returns process.

How voice biometrics can detect return fraud

Voice biometric analysis brings multiple benefits to retailers, helping to reduce fraud and improve operational efficiency. 

Real-time authentication

With voice biometrics, you can authenticate customers in real-time, helping to ensure that the person initiating a return is the purchaser. This technology can be particularly useful in contact centers, where authenticating customers through traditional methods is more challenging.

By using multifactor authentication, stores can drastically reduce fraudulent return attempts. This process also minimizes disruptions for genuine customers, maintaining a smooth and efficient return experience.

Fraud detection

Voice biometrics can identify suspicious behavior patterns by the individual attempting the return.

Multifactor authentication 

You can use voice biometrics as part of a multifactor authentication (MFA) approach, combining content-agnostic voice verification with other verification methods like PINs or SMS codes. 

With this approach, even if one method fails, or if some credentials are lost or stolen, you still have a method to detect fraudulent activity.

Secure transactions

Voice biometrics can help create a secure environment for customers during their transactions. Once the system receives authentication information on the customer, it can securely process the return, significantly reducing the chances of refund fraud. This helps protect the retailer from loss and can provide customers with peace of mind, knowing their information is securely handled.

Accelerating return transactions

When using traditional authentication methods, customers can often find the process tedious. Voice biometrics help speed up return transactions, as customers can skip more lengthy verification procedures.

This helps create a faster, hassle-free return process, contributing to a better overall customer experience.

Data protection

Retailers can use voice biometrics to enhance data protection protocols, maintaining their consumers’ trust.

Implementing voice biometrics in your retail system

Integrating voice biometrics into your retail system in a way that’s effective and user-friendly requires careful planning.

Evaluate current systems 

Start by evaluating your existing return processes and fraud detection strategies. Understanding where current vulnerabilities lie will help identify how voice biometric analysis can fill those gaps.

Select a reliable voice biometrics solution provider

Partnering with a reliable voice biometrics provider is crucial. Look for vendors with experience in retail security, a track record of success, and robust data protection measures.

Integrate voice biometrics seamlessly into retail systems

Ensure that voice biometrics integrate smoothly with your existing retail systems. This will reduce disruption during the implementation phase and allow both customers and staff to adapt quickly to the new system.

Train staff on using voice biometrics system 

Training your staff members on how to use the voice biometrics system effectively is critical. Otherwise, no matter how good the technology is, there’s an increased risk of human error that could eventually lead to return fraud. 

Training should include knowing when and how to use the technology and troubleshooting potential issues to prevent delays in the returns process.

Monitor system performance and optimize processes 

After implementation, regularly monitor the system’s performance to ensure it functions as expected. Make necessary adjustments to optimize the system’s capabilities and improve its accuracy and efficiency in supporting fraud prevention efforts. 

Additional benefits of voice biometrics in retail

Beyond helping prevent return fraud, voice biometrics offer additional advantages that enhance the overall retail experience.

  • Reduced fraud costs: By minimizing fraudulent returns, retailers can significantly reduce the financial losses associated with them. This helps merchants optimize their operations, improve profitability, and focus resources on serving genuine customers.
  • Convenience: Voice biometrics streamline the return process by eliminating the need for physical IDs or receipts. Customers can complete their returns quickly and easily, leading to a better shopping experience.
  • Trust and loyalty: Implementing voice biometrics builds trust with customers, as they feel confident that their identities and transactions are secure. This increased level of trust enhances customer loyalty and encourages repeat business.
  • Transparency: Maintaining transparency with customers about the use of voice biometrics for fraud detection can foster confidence. Clear communication regarding how voice analysis is used will help consumers understand the purpose and benefits of this technology.

Adopt a voice biometrics solution to help prevent return fraud

Return fraud is a serious issue affecting retailers worldwide, leading to losses of billions of dollars each year. While strict return policies may be somewhat helpful, retailers need to find better, customer-friendly alternatives. One such approach is voice biometrics, which offers additional defenses against fraudulent returns while improving the customer experience.

Voice biometric solutions can help merchants secure their return processes, reduce fraud costs, and build stronger relationships with customers. Adopting such a technology may seem like a significant shift, but its long-term benefits, both in fraud detection and customer trust, make it the perfect choice for small and large retailers.

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Retail fraud is a significant challenge for businesses today due to the substantial financial losses and delicate balance to maintaining customer satisfaction and trust. In this comprehensive article, we will explore various types of retail fraud, their impact on businesses, and how to detect them. We’ll also delve into the role of voice security technology in fraud detection, highlighting Pindrop’s innovative solutions.

The impact of fraud on retail businesses

Retail fraud can severely affect businesses, leading to financial losses, increased operational costs, and reputational damage. Regardless of the size of the business, fraud is a real risk. Retailers with 1-20 employees were most likely to experience theft daily (17%). Businesses with 21-30 employees were most likely to experience theft a few times per week (31%)

Fraudulent activities such as chargebacks, return fraud, and employee theft can significantly affect a company’s bottom line. Understanding the different types of retail fraud is crucial for implementing effective prevention strategies. Companies can lessen their exposure to fraud by adopting proactive measures and leveraging advanced technologies.

4 common types of retail fraud

1. Credit card fraud

Credit card fraud is one of the most prevalent types of retail fraud. It occurs when someone uses a stolen or counterfeit credit card to make unauthorized purchases. With the emergence of chip-and-PIN functionality, fraudsters are increasingly preferring online fraud avenues. There are several forms of credit card fraud:

  • Counterfeit card fraud involves creating fake credit cards using stolen card information. These fake cards are then used to make purchases at retail stores.
  • Card-not-present fraud happens when a fraudster uses stolen credit card information to make online or phone purchases without a physical card.
  • Lost or stolen card fraud occurs when fraudsters use lost or stolen credit cards to make unauthorized transactions until the cardholder reports the card as missing.

According to Veritas Federal Credit Union, card-not-present (CNP) fraud is expected to account for 90% of the overall growth in U.S. card fraud losses from 2022 to 2024.

2. Return fraud

The National Retail Federation (NRF) reported $743 billion in merchandise returns in 2023. NRF Director Mark Mathews states, “Retailers continue to test and implement new ways to minimize losses from returns, particularly those that are fraudulent, while at the same time optimizing the shopping experience for their customers.” 

According to the report, around 14.5% of all purchases result in return, with higher rates for online purchases. For every $100 in returned merchandise, retailers will lose $13.70 to return fraud. Return fraud continues to be a growing problem for U.S. merchants, resulting in billions of dollars lost yearly and reaching $101 billion in 2023. Return fraud occurs when individuals exploit a retailer’s return policy to receive refunds or exchanges dishonestly. Common types of return fraud include:

  • Return of stolen merchandise is where thieves steal merchandise and return it to the store for a refund or store credit.
  • Wardrobing involves purchasing, using, and returning items for a full refund. This is common with clothing and electronics.
  • Receipt fraud involves using counterfeit or altered receipts to return merchandise for a refund.

Pindrop provides these three steps to help protect call centers from refund abuse and fraud.

3. Employee theft

Employee theft is a significant issue for retailers, as dishonest employees can cause substantial losses. The average dishonest retail employee costs their employer $1,551.66, and the percentage of retailers that noted employee fraud as a growing priority continues to increase, noting internal theft as the second-largest factor in retail loss

Common forms of employee theft include:

  • Sweethearting occurs when an employee gives away products to friends or family without charging them.
  • Skimming involves employees stealing small amounts of money over time from cash registers or other transactions.
  • Inventory theft is where employees may steal merchandise from the store’s inventory for personal use or resale.

4. Online fraud

E-commerce merchants in the United States reported an average of over 1,200 fraud attacks per month in 2022—a 50% increase from the previous year, and those losses from online payment fraud hit $41 million that year. With the rise of e-commerce, online fraud has become increasingly common. Types of online fraud include:

  • Account takeover is where fraudsters gain access to a customer’s online retail account and make unauthorized purchases or changes.
  • Phishing involves tricking customers into providing their personal or financial information through fake websites or emails.
  • Carding is the practice of testing stolen credit card information to make small purchases online, verifying if the cards are still active.

How to better detect retail fraud

To combat retail fraud, businesses must implement robust prevention strategies. Here are some effective methods:

Voice biometric technology

Voice biometric technology is a powerful tool for helping to detect fraud. By analyzing unique vocal characteristics, this technology can authenticate customers and detect fraudulent activities.

Behavioral analysis

Behavioral analysis monitors customer interactions and behaviors to identify suspicious activities that may indicate fraud.

Anomaly detection

Anomaly detection uses advanced algorithms to identify unusual patterns in transaction data, helping to detect and prevent fraud in real-time.

Fraud detection and prevention platform

A comprehensive fraud detection and prevention platform integrates various technologies and strategies to provide a holistic approach to combating retail fraud. For example, Pindrop’s solutions offer advanced capabilities to help businesses protect themselves from a range of fraudulent activities.

Machine learning and AI

Machine learning and artificial intelligence (AI) can enhance fraud detection by continuously learning from data and improving the accuracy of fraud prevention systems. These technologies can significantly improve security, especially for online fraud.

Train employees to identify suspicious behavior

Employee training is crucial for preventing retail fraud. Educate employees on recognizing suspicious behaviors, such as unusual purchasing patterns or nervous customer interactions, and encourage them to report any suspicious activities immediately. Proper training can help employees identify potential threats and take appropriate action to help prevent fraud. Additionally, securing call centers in retail, which are often targets for refund abuse fraud, is essential for comprehensive protection.

Use Pindrop Solutions for a robust fraud prevention solution

Retail fraud prevention is essential for safeguarding your business’s financial health and maintaining customer trust. By understanding the different types of retail fraud and implementing advanced technologies like voice biometrics and machine learning, businesses can effectively combat fraudulent activities. 

Pindrop offers cutting-edge voice security technology and fraud detection solutions tailored for call centers in the retail industry. By partnering with Pindrop, businesses can better protect their financial health. 

See how Pindrop helped the largest e-commerce retailer protect the customer experience while reducing fraud losses 3X.

White Paper

$23B in losses.1 That’s the impact of retail fraud.

How protected are you? Read the white paper and learn about fraud trends and how Pindrop can help secure your business.

 

1 NRF survey on Cost of Retail Returns 2022

  • Fraud rates are high in retail, with fraudsters stealing 3.6% of all e-commerce revenue in 20222
  • The Concession Abuse as a Service (CAaaS) ecosystem includes 2K+ “service providers”3 who are adept at abusing returns
  • Fraudsters have specific targets, with detailed returns and abuse profiles for the top 250 merchants3

2 Developing a Framework for Understanding and Measuring E-commerce Losses in Retailing, 2023
3 Research from Arizona State University

Here’s what to expect​

Learn more about the organized world of retail fraud and discover ways to prevent losses at your call centers.

Discover the financial impact of retail fraud, its prevalence in contact centers, and the results of better fraud detection at a large retailer.

Better understand Concession Abuse as a Service (CAaaS) and the tactics of the 2,251 “service providers” who are adept at abusing returns.4 Read about their social engineering tactics—and why call centers are particularly vulnerable.
4Research from Arizona State University

With voice, device, and behavior analysis, and real-time risk assessments for each call, our solution resulted in 22% more fraud detected and a 58% lower false positive rate.

Retail loss prevention is a critical aspect of managing a successful retail business. As retail crime continues to evolve, more than traditional loss prevention methods are needed. One of the top forms of e-commerce fraud in 2022 was phishing. Phishing is when a fraudster sends a message via text or email that looks legitimate but is a scam designed to steal information. 

The advent of advanced technologies, including voice security, offers new and practical solutions to enhance loss prevention strategies. In this blog, we’ll explore how voice security can revolutionize retail loss prevention, providing real-time fraud detection and significant benefits for retailers.

Understanding retail loss prevention

Retail loss prevention encompasses a variety of strategies and tactics for minimizing theft, fraud, and other forms of revenue loss. These measures range from physical security installations to employee training and sophisticated technology solutions. Let’s dive into traditional loss prevention methods, as well as future developments to help retailers mitigate economic losses in the future.

Three limitations to traditional loss prevention methods 

While conventional methods have been the backbone of loss prevention strategies, they come with several limitations:

    • Security guards are costly and they typically react to incidents after they occur, which means they cannot prevent all theft and fraud.
    • Video surveillance is a staple in loss prevention but has its drawbacks. It typically doesn’t capture audio for identification and has blind spots, making it less effective in comprehensive monitoring.
    • Point-of-sale (POS) systems are essential for transactions but are vulnerable to internal theft and may not detect fraudulent phone orders.

The role of technology in modern retail loss prevention

Advancements in technology have introduced new tools to combat retail losses more effectively:

    • High-definition video cameras and AI-powered analytics provide better surveillance and detection of suspicious behavior.
    • Electronic shelf labels (ESLs) enable real-time inventory tracking and price updates.
    • Radio frequency identification (RFID) helps track merchandise throughout the supply chain. 
    • Loss prevention software integrates POS data with other sources to identify trends and predict potential theft.
    • Biometric access control systems restrict access to sensitive areas, enhancing security.

Voice security for enhanced loss prevention

Voice security is an innovative technology offering retailers a new protection layer. It enhances traditional methods and provides real-time solutions to help detect fraud.

How voice security works for retailers

Voice security utilizes advanced technology to monitor and analyze voice interactions, offering several benefits for loss prevention:

    • Real-time fraud detection during calls
      Voice security systems can detect fraudulent activities during calls in real-time, allowing retailers to take immediate action.
    • Advanced analysis for risk assessment
      Advanced analysis tools assess the risk level of calls, providing retailers with insights into potential threats.
    • Voice analysis for suspicious call identification
      Voice analysis technology helps identify suspicious callers by comparing their voice patterns (along with other information) with known fraudsters.

Benefits of implementing voice security for retailers

Voice commerce is on the rise, according to Shopify, and is a screen-free way for consumers to communicate with retail brands in the future. To ensure safe and secure shopping in the future, implementing voice security in retail offers numerous advantages.

    • Reduced shrinkage
      Voice security helps reduce shrinkage by detecting fraudulent activities before they result in significant losses.
    • Faster authentication for trusted customers
      Voice security systems can quickly authenticate trusted customers, improving the customer experience while maintaining security.

Future trends and developments in voice security

The future of voice security in retail looks promising, with continuous advancements expected to enhance its capabilities. These developments will further require the need to integrate voice security with other technologies, providing a more comprehensive approach to loss prevention.

Combat retail loss prevention with voice security today

Incorporating voice security into your loss prevention strategy can significantly enhance your ability to detect fraud. Leverage this advanced technology to protect your retail business from evolving threats and stay ahead of the curve. 

Pindrop offers retailers a seamless way to incorporate voice biometrics to help secure their e-commerce call center experiences. For more insights on loss prevention strategies and how to implement them, check out our guide: 5 Steps Retailers Should Take to Mitigate Return Fraud

Explore our solutions page and learn how Pindrop’s voice security technology helped one of the largest e-commerce companies get on track to save nearly $10M in fraud losses and how it can help you secure your retail operations. 

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