Significant actions have been taken to begin tackling this growing threat
In Summer 2024, we published our plan to kickstart industry action to tackle the growing challenge of first party, or customer fraud. This type of fraud occurs when a legitimate transaction is falsely disputed through a retailer's refund process or the chargeback system, resulting in financial losses, increased operational costs and wider impacts for retailers.
The issue has grown significantly in recent years, driven by the rapid expansion of ecommerce during and after the pandemic, alongside faster delivery options and more flexible returns and refund processes. Recognising that no single organisation can solve this challenge alone, we committed to working collaboratively with members and engaging with payment providers, banks, regulators, law enforcement and government to develop practical solutions.
To date, significant progress has been made.
Bringing the retail voice into government
A dedicated BRC retailer working group was established to help shape and inform our programme of work. Through this group, we have been able to ensure the retail sector's experiences and evidence are reflected in discussions with policymakers and industry partners.
A key focus has been engagement with the Home Office to raise awareness of the growing threat that customer fraud poses to retailers. We successfully advocated for fraud against businesses to be recognised within the Government's recently launched National Fraud Strategy, helping to ensure the issue receives greater attention at a national level.
The National Fraud Strategy has already helped drive new initiatives led by Cifas that aim to improve prevention, intelligence sharing and enforcement:
1. Dedicated Retail Fraud Unit
Cifas is currently designing a new Dedicated Retail Fraud Unit (DRFU), bringing together retailers, law enforcement and government to create a more coordinated response to customer fraud.
A recent roundtable involving retailers, the Home Office, City of London Police and Cifas explored several key themes, including:
- improving the way retailers report fraud and share intelligence;
- developing practical operational tools and legal gateways to support investigations;
- creating a more integrated partnership between retailers, Cifas and law enforcement; and
- identifying the evidence and performance measures needed to demonstrate the unit's long-term value.
The discussions will help shape a dedicated capability focused on preventing, disrupting and investigating retail fraud.
2. Retail fraud events database
Cifas is also preparing to pilot a new retail fraud events database. Participating retailers will submit suspected and confirmed first party fraud cases to generate shared intelligence, identify trends and develop a long-term industry-wide data-sharing capability.
Building the evidence base
Strong evidence is essential to securing action from policymakers and industry partners.
Research published by Cifas and the University of Portsmouth estimates that refund fraud could be costing UK retailers more than £5 billion every year. The report highlights the growth of online returns abuse, increasing involvement of organised "refund as a service" operations, and the need for greater industry-wide intelligence sharing to tackle offenders who often believe they are effectively untouchable online.
Alongside this, our retail working group helped shape an issuer and merchant collaboration proof of concept focused on identifying first party fraudulent chargeback claims.
Retailers submitted examples of chargeback disputes they believed involved first party fraud. Specialist fraud and disputes teams from HSBC, Lloyds and Barclays independently reviewed the cases using merchant evidence alongside their own internal data, before Visa analysed the findings.
The results were encouraging:
- 41 cases were reviewed, involving more than 200 hours of detailed investigation.
- 28 cases (68%) were confirmed by issuing banks as containing evidence of first party fraud.
- A further 6 cases (15%) contained indicators of first party fraud and warranted additional investigation.
- Only 7 cases (17%) were assessed as not containing first party fraud indicators.
Overall, in 83% of cases, banks either agreed that first party fraud had occurred or concluded that there was sufficient evidence to justify further investigation.
The proof of concept demonstrated that retailers are well placed to identify first party fraud within the chargeback process. The findings are now being shared more widely to support ongoing advocacy and future industry collaboration.
Strengthening law enforcement collaboration
We have also worked closely with City of London Police to ensure customer fraud is recognised as a priority within its plans for tackling fraud and improving intelligence gathering and enforcement activity.
In addition, we helped shape the scope of Report Fraud, the UK's new national fraud and cybercrime reporting service, which replaced Action Fraud and the National Fraud Intelligence Bureau earlier this year. The new service aims to make it easier for businesses and individuals to report fraud while improving the speed and quality of intelligence available to policing.
Bringing retailers together
Collaboration across the industry remains central to tackling first party fraud.
Last year we hosted a member event in partnership with Ravelin, bringing together retailers to discuss the scale of the challenge and share practical experiences.
The event included expert contributions from retailers who shared insights into how customer fraud is affecting businesses and the approaches retailers are taking to prevent it. Members also participated in facilitated discussions to exchange challenges, lessons learned and opportunities for greater collaboration across the sector.
Looking ahead
Our work continues!
We will continue to ensure the retail industry's voice is represented in government and regulatory initiatives, while helping shape future payment innovations to reduce opportunities for fraud. We will also continue working with members, banks, payment providers and law enforcement to strengthen intelligence sharing, improve reporting and develop practical solutions that protect retailers.
We encourage members to get involved in this work. The broader the industry's participation, the stronger our collective voice and the greater our ability to influence policy and deliver meaningful change. We will continue to keep members updated on developments and opportunities to contribute as this work progresses.
