Preventing Wardrobing: The Tech That Identifies Patterns to Minimize Refunds and Returns

Omnichannel shopping has transformed the way we shop, offering convenience, variety, flexibility, and speed at the click of a button. But lurking behind this seamless experience is a complex web of challenges that retailers face every day—chief among them, managing and preventing wardrobing, a type of return fraud. In 2023 alone, U.S. retailers saw $743 billion worth of products returned, leading to $400 billion in lost sales, according to the National Retail Federation. With an average return rate of 17.6% for purchases, returns are not just a logistical headache; they are a significant drain on profitability. So, how do major omnichannel commerce providers manage these issues without crippling their operations?

The answer lies in technologies that quietly work behind the scenes, reshaping how returns are processed and fraud is mitigated. You might be surprised to learn that one such technology, a now foundational piece of intellectual property, has been driving these solutions for years, and it’s built on principles outlined in an older yet groundbreaking patent on refund data harmonization.

Lakshmi Daggubati is one of the inventors of a foundational architecture that is widely being used even today. Her work laid the groundwork for the systems that many major omnichannel platforms use today. “When I first developed the Database System Architecture for Refund Data Harmonization, I saw it as more than just a solution for one channel,” Lakshmi explains. “I envisioned a system that could be adapted and scaled across the industry to handle the growing complexities of returns and refunds, especially with the rise of both retail and online shopping.”

The Growing Challenge of Fraud and Returns in Omnichannel Businesses

Returns are inevitable in any omnichannel businesses, but they don’t have to be a “plague” on a business’s bottom line. Many customers buy products online with the intention of returning some or all of them, often leading to what is known as “friendly fraud”—where the line between genuine and fraudulent returns becomes blurred. This kind of fraud is a growing concern, and retailers are continually on the lookout for better systems to handle it.

Moreover, managing returns isn’t just about processing a refund. It involves a complex reverse logistics chain, from receiving the product back to evaluating its condition, restocking it, or even deciding to liquidate it. Handling this process manually can be slow, error-prone, and costly. That’s where smart technologies come into play, allowing businesses to automate decision-making, streamline operations, and reduce losses.

The Hidden Technology Behind Smarter Returns and Fraud Prevention

A pivotal development in this space was the concept of harmonizing refund data, which thanks to inventors like Lakshmi is now being used throughout the field to assess transaction risks in real-time. Essentially, this approach involves creating a unified data structure that integrates multiple data points—such as customer purchase history, product return rates, and refund behavior—to predict the likelihood of fraudulent activities. Lakshmi adds “By analyzing these harmonized data sets, omnichannel service providers have automated the decision-making process, making real-time assessments on whether to approve, deny, or flag a return for further review”.

How This Technology Has Shaped Today’s Omnichannel Landscape

Although this foundational concept dates back several years, the principles of modern-day implementations like Lakshmi’s continue to influence omni channel platforms today. A reputed omnichannel merchant earlier this year, for example, adopted similar methodologies to generate customized return policies. Their system assesses the likelihood of returns by analyzing factors like customer return history, product type, and return trends for specific items. It uses this data to create tailored return policies, ensuring that return conditions are dynamically adjusted based on calculated risk profiles.

Likewise, several retail companies have integrated these core concepts into its return management system. By leveraging harmonized data, these retailers focus on optimizing return paths based on factors such as product condition, customer trust score, and logistical costs. The result is a more efficient and customer-friendly returns process that not only saves money but also boosts customer satisfaction and loyalty.

Modern Applications and Future Potential

While the original ideas provided a foundational framework, advancements in technology have enabled even more sophisticated applications. Today, machine learning and artificial intelligence are being layered onto these earlier systems to enhance fraud detection and return management. AI models can now predict potential fraud with higher accuracy by continuously learning from new data, making these systems more robust and less susceptible to manipulation.

Emerging technologies such as blockchain also hold promise for this field. With blockchain, retailers could create immutable records of every transaction and return, providing an additional layer of security and transparency. This could further reduce fraudulent activities and streamline dispute resolution processes between customers and retailers.

How This Impacts You as a Consumer

As a consumer, these advancements mean smoother transactions and fewer headaches when it comes to returns. Imagine a scenario where you initiate a return, and the system instantly recognizes you as a low-risk customer based on your history. Your return gets approved instantly, and the refund is processed without delay. On the flip side, customers with a pattern of high returns or suspicious behavior may face additional scrutiny or customized policies to protect the retailer’s interests.

This sophisticated balance between customer experience and fraud prevention wouldn’t be possible without the foundational work established years ago. Technologies built on these early principles have made these scenarios a reality, quietly working to make our e-commerce experiences smoother and more secure.

The Unsung Hero of Modern Omnichannel Shopping Experience Is Technological Progress itself

While new technologies like AI and blockchain continue to make headlines, it’s crucial to recognize the hidden frameworks that power today’s advancements. The ideas laid out in earlier innovations remain relevant, shaping the strategies and systems that retailers rely on to navigate the complex landscape of returns and fraud.

So, the next time you effortlessly return an item or feel confident in the security of your online transactions, remember there’s a sophisticated, layered system working behind the scenes—one that owes much of its existence to innovations that started years ago, paving the way for today’s advanced omnichannel fraud detection solutions.