The AI Revolution in Retail Returns: How Smart Tech Fights Fraud Without Losing Customers

NEW YORK, NY – January 12, 2026 – The world of e-commerce is grappling with a costly paradox. As online sales flourish, so does the volume of returns, creating a billion-dollar headache for retailers. A recent analysis by e-commerce risk intelligence firm Riskified has cast a stark light on the issue, revealing that nearly one in four dollars claimed in refunds is the result of abuse. In response to this growing financial drain, many merchants have implemented stricter, one-size-fits-all return policies. However, these blunt instruments are creating significant collateral damage, frustrating and alienating their most loyal customers.

This tension between fraud prevention and customer satisfaction has become a central challenge for the retail industry. Now, a new wave of artificial intelligence-powered solutions, including Riskified's newly announced 'Dynamic Returns' feature, aims to resolve this dilemma by offering a more nuanced, data-driven approach that can distinguish a legitimate shopper from a serial abuser in real time.

The Billion-Dollar Dilemma of Returns

The scale of the returns problem is staggering. Broader industry reports project that total retail returns could approach $890 billion in 2024, with retailers losing an estimated $103 billion directly to return fraud and abuse. The problem is particularly acute in e-commerce, where return rates can exceed 30%, significantly higher than in brick-and-mortar stores. Riskified’s own research found that while 1-2% of total order value is requested back in refunds, a stunning 25% of that value is abusive.

Retailers have not been idle, but their countermeasures have often been clumsy. Faced with overwhelming abuse, many have shortened return windows, instituted flat return fees, or delayed refunds until items are painstakingly inspected at a warehouse—a process that can take ten days or more. While these measures may deter some fraudsters, they inflict a heavy toll on customer experience. According to the National Retail Federation, 68% of shoppers will not shop with a brand again if a refund takes more than five days. Slow refunds have become the second-leading cause of customer service inquiries, adding operational costs on top of lost revenue.

“Fraudulent claims don’t just hurt retailer profitability, they cost good customers time and patience,” said Jeff Otto, Chief Marketing Officer of Riskified, in the company's announcement. “When refunds are delayed for days or weeks, loyal shoppers become frustrated and may not come back.”

The data shows that fraudsters are strategic. Riskified’s report, “Refunduary is here,” highlights that claims filed within the first seven days of a purchase are over 20% more likely to be abusive. High-value orders are also prime targets; claims for orders over $2,000 are 2.5 times higher than for those under $100. The most abused category is “Item Not Received” (INR) claims, which exploit liability gaps in the delivery process and are 25% more likely to be fraudulent than other claim types.

AI as the Arbiter: The Rise of Dynamic Policies

Instead of treating every customer as a potential suspect, new technologies are enabling retailers to personalize the returns process based on risk. Riskified's 'Dynamic Returns' is part of this growing trend, using an AI platform to instantly assess the legitimacy of a refund or exchange request as it is submitted. By analyzing a customer's identity, behavioral history, and a vast network of data signals, the system can differentiate between a trusted, high-value shopper and an account with patterns of abusive behavior.

This real-time intelligence allows merchants to create adaptive return policies. For a verified loyal customer, the system can trigger an instant refund or ship a replacement item immediately, without waiting for the original product to be sent back. In some low-risk scenarios, a refund might be issued without requiring the item's return at all, saving both the customer and the retailer the cost and hassle of reverse logistics. Conversely, a high-risk claim can be flagged for manual review or subjected to stricter requirements.

The results from an early adopter are promising. A retailer using the Dynamic Returns feature was able to instantly approve more than half of all returns for its loyal customers. This swift resolution led to a more than 20% increase in customer satisfaction (CSAT) scores for those who received early refunds. Critically, the system demonstrated high accuracy, with over 97% of these instantly approved refunds going to customers who did, in fact, return their items as promised.

A New Standard in a Competitive Landscape

Riskified is not alone in identifying this critical market need. The e-commerce technology landscape is rich with companies offering sophisticated solutions to manage the post-purchase experience. Competitors like Signifyd with its 'Intelligent Returns' suite and Forter's 'Abuse Prevention' platform also leverage vast data networks and machine learning to distinguish between legitimate customers and fraudsters. These platforms similarly aim to enable frictionless, instant refunds for good customers while blocking abusers.

The emergence of these advanced tools signifies a major industry shift. For years, fraud prevention was seen as a cost center focused solely on blocking bad transactions. Today, it is being reframed as a critical component of the customer experience. By using AI to understand customer identity and intent, retailers can move beyond rigid, punitive policies and cultivate loyalty. This trend aligns with analyses from firms like Gartner and Forrester, which note a convergence of fraud prevention, identity verification, and cybersecurity into unified platforms that prioritize a seamless and secure customer journey.

Redefining the Customer Journey Beyond the Checkout

The post-purchase experience—from delivery tracking to returns—is increasingly where brand loyalty is won or lost. In a crowded market, a simple, fast, and trustworthy return process can be a powerful differentiator. Consumers have come to expect convenience, with studies showing that a majority consider free and easy returns a key factor in their shopping decisions.

Solutions that enable dynamic, intelligent returns are transforming this final touchpoint of the customer journey from a potential point of friction into an opportunity to build trust. By rewarding good customers with immediate resolutions, retailers not only improve satisfaction but also encourage future purchases. This approach protects profitability by surgically targeting abuse, rather than using a sledgehammer that damages relationships with the entire customer base. As e-commerce continues its relentless growth, the ability to balance convenience with control is paramount, and AI-driven risk intelligence is proving to be the key to unlocking that balance.