Digital Shoplifting: Understanding and Combating Online Retail Fraud
According to the British Retail Consortium (BRC), shoplifting in the UK is surging. Reported cases jumped from 3.7 million to 20.4 million within a year.
Viral social media clips show brazen daylight shoplifting. Reports quote frustrated shopkeepers afraid to intervene.
Experts in retail, law, and economics debate the causes, blaming the economy, policing, organized crime, and justice systems. While physical shoplifting dominates headlines, digital shoplifting is equally bold and costly.
What Is Digital Shoplifting and How Does Refund Fraud Work?
Digital shoplifting, also called cyber shoplifting or online shoplifting, often involves refund fraud. It’s nicknamed “friendly fraud” because it minimizes direct contact between perpetrators and businesses.
Refund fraud happens when someone buys an item online, then claims a refund but keeps the product. Common refund fraud tactics include:
- False claims: The fraudster says they never received the item or parts are missing, demanding a refund or replacement.
- Fake returns: They claim to return an item but don’t or send back something of lesser value.
- Damage claims: They claim the item arrived damaged, convincing the retailer to send a replacement.
Retailers often relax checks for low-value items since inspecting returns can cost more than the item’s value. But how do fraudsters succeed with expensive items, like laptops, without returning them?
Often, insiders within the targeted companies help. These employees manipulate systems to process refunds, bypassing security checks.
Insiders risk termination or arrest but may earn 30–40% of each fraudulent transaction – certainly a strong financial lure.
How Can Retailers Control Digital Shoplifting?
Refund fraud puts retailers in a difficult spot. They need flexible refund policies to keep legitimate customers happy. Automation helps, but it also creates vulnerabilities.
Too much automation or lenient rules make fraud easier. Conversely, strict checks drain resources and frustrate genuine customers with unnecessary hurdles.
Retailers must balance efficiency with fraud prevention to protect revenue and customer satisfaction.
Who Commits Digital Shoplifting?
A recent US survey shows younger, affluent demographics lead in refund fraud. About 55% of Gen Zers and 49% of millennials earning over $100,000 admit to it.
Why? Social media influencers promote refund fraud as harmless “life hacks,” like skincare routines, meal prep recipes or enterrprising side hustles. This normalizes the behavior among younger audiences.
Many justify stealing from large corporations, viewing them as wealthy enough to absorb losses. However, theft forces retailers to raise prices, affecting all consumers.
Unlike physical theft, digital shoplifting feels less morally wrong to some. It’s framed as exploiting loopholes, not “real” stealing. The lower risk of getting caught adds to its appeal.
Perpetrators often use fake identities, addresses, and payment methods. The worst-case scenario? Getting their account banned. Organized groups, however, face harsher legal consequences.
The Role of Organized Crime in Digital Shoplifting
While many digital shoplifters act alone, organized refund fraud groups thrive online. At Netacea, our Threat Intel Center tracks hundreds of these groups on the dark web and Telegram.
Fraudsters share tips on targeting retailers, avoiding detection, and maximizing profits. Some even exploit courier service weaknesses to fake lost shipments or missing returns.
Groups often have insiders within retailers, increasing success rates but requiring a share of profits. Some offer “refund fraud as a service”, handling everything for a fee or profit percentage.
These services reflect the professionalization of cybercrime, lowering the barrier for new fraudsters to enter the space.
Organized groups may also target specific items, just like physical shoplifting gangs steal goods “to order.”
Are Digital Shoplifters at Risk of Prosecution?
While digital shoplifting can be profitable, it carries legal risks. Organized groups face severe penalties if caught.
For example, the Artemis Refund Group (ARG) defrauded retailers like Amazon, Wayfair, Dell, HP, and Adidas of millions between 2019–2023. The FBI arrested ten members, who now face up to 20 years in prison.
How to Combat Digital Shoplifting
Retailers can’t rely solely on internal checks to detect refund fraud. Criminals constantly evolve tactics to bypass security systems.
Threat intelligence strengthens defenses. It helps:
- Identify known fraud tactics and patterns.
- Monitor items targeted by fraud groups.
- Expose insiders facilitating fraud.
- Link suspicious cases to organized fraud activities.
However, accessing fraud groups is challenging. Many are secretive, screening members to avoid detection by retailers and law enforcement.
How Netacea Threat Intel Center Fights Digital Shoplifting
Netacea’s Threat Intel Center has infiltrated hundreds of refund fraud groups using carefully crafted undercover accounts.
Our research, featured in the Refund Fraud-as-a-Service Threat Report, is widely used in the retail industry. Some fraud groups even reference our work!
For example, a major US retailer tasked us with investigating fraud. Within a week, we identified an insider advertising their refund fraud services in six groups. This fast detection helped the retailer neutralize the threat swiftly.
Our ongoing work helps retailers measure their anti-fraud strategies’ effectiveness and adapt to evolving threats.
Stay Ahead of Digital Shoplifting with Netacea
As you read this, we’re gathering intelligence from illicit groups targeting global brands. We turn this data into actionable reports, helping retailers minimize fraud’s impact.
Contact us today to learn how Netacea can protect your brand from digital shoplifting and online retail fraud.
