From free returns to fraud — the growing cost of “refund hacks” for SMEs

Refund hacks — otherwise known as refund abuse — is something that’s been costing businesses greatly in the last year.

With this issue becoming more common, ecommerce businesses and online retailers are stuck between trying to maintain a positive customer experience while protecting themselves from dishonest returns.

For smaller businesses, it’s not just about the money. Dealing with disputes, tracking returns, and responding to claims across multiple channels can quickly take up time and energy. 

And while it’s easy enough to slap on a return fee to fix the issue, this comes at the cost of customer satisfaction. So, how should online retailers push back against refund abuse without risk of losing loyal shoppers?

How do “refund hacks” work?

While there isn’t any actual hacking going on, a “refund hack” works by exploiting a retailer’s return policy for dishonest financial gain.

According to Ravelin’s State of Refund Abuse Report 2026, 37% of UK shoppers have admitted to abusing a merchant’s refund policies in the last year.

One common form of this is “refund without return”, where customers repeatedly claim items are defective or missing to get free products. Another approach is “wardrobing”, in which someone buys an item and uses it for a short time (such as an outfit for an event), then returns it for a full refund, claiming that it’s unused.

Other cases include making false claims (saying an item arrived damaged, was never delivered, or was the wrong product) or return fraud (such as returning a different item than what was bought or returning empty boxes).

Ravelin’s report also found that “bracketing” has been the most commonly used form of refund abuse, with 45% of respondents admitting to buying more than they intend to keep (like multiple sizes, colours, or extra items), and then returning the excess items after keeping what they want.

The true cost of refund abuse for businesses

Unsurprisingly, the immense rise in refund abuse has come at a hefty cost for ecommerce businesses and retailers — costing £1.3bn a year in total.

However, Lei Gao, Chief Technology Officer at SleekFlow, says that the impact of refund abuse goes beyond cost, as smaller teams in particular are often stretched thin trying to manage disputes, track returns, and respond to customer claims.

“For small businesses, chargebacks can become an operational drain aside from being a finance issue.” Gao explains. “Some founders end up handling the disputes and chasing information while running the business.”

Gao also adds that early warning signs of refund abuse are scattered across different channels — such as email, social media, direct messages, and marketplaces — making it harder to spot patterns that a dispute is impending.

According to Gao, certain behaviours often appear before disputes escalate. Early signs include repeated follow-ups about delivery or refunds, questions around policies rather than product use, and escalating urgency before there’s an issue.

“There’s a growing perception online that disputing a payment is just part of smart shopping,” he continues. “But for a small business, one dishonest chargeback can wipe out the profit from multiple legitimate orders.”

How should online stores fight back?

Online stores and ecommerce businesses are already counteracting refund abuse through return fees. In fact, 76% of the UK’s top 100 merchants now charge customers for returns, including major retailers such as Boohoo, New Look, Zara, and H&M. 

In more recent news, online fashion retailer ASOS has also introduced handling fees for customers who frequently send back their orders, charging £3.95 for those who keep less than £40 of an order.

But aside from return fees, another way to tackle refund abuse is through practices that cut off repeat offenders without making returns harder for everyone else.

To do this, businesses should remove the incentives that make abuse easy, while still rewarding genuine customers. 

For example, free shipping should be based on what people actually spend, refunds without returns should only be for low-risk cases, and perks like gifts or discounts shouldn’t remain if the qualifying items are returned. At the same time, loyal customers who rarely return items should still receive flexible policies and fast resolutions, so they don’t feel penalised for other people’s behaviour.

Moreover, businesses should be proactive. Tracking factors such as the regularity of returns, how often customers claim issues like “item not received”, and whether they buy regularly just to qualify for free shipping (ultimately resulting in a return), can help retailers spot refund abuse patterns and highlight repeat offenders.

“As refund hacks become more normalised, the line between customer service and dispute prevention continues to blur,” Gao continues. “Businesses that resolve uncertainty early are better positioned to reduce losses without damaging trust.”