Name: Using AI to fight fraudulent returns
Uploaded: 2026-01-15T15:45:24.613Z
Duration: 4 min 2 s
Description: Retailers are turning to artificial intelligence to address the growing problem of fraudulent returns, which account for approximately $75 billion in losses annually.

Retailers are turning to artificial intelligence to address the growing problem of fraudulent returns, which account for approximately $75 billion in losses annually.

The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

Rise of AI

Retailers are turning to artificial intelligence to address the growing problem of fraudulent returns, which account for approximately $75 billion in losses annually. Companies such as Happy Returns, owned by UPS, use AI alongside human inspection to identify and flag suspicious returns at thousands of locations, with about 15% of high-risk returns confirmed as fraudulent.

Other firms like Navar are also applying AI to detect fraud in delivery claims, reducing payouts by 25% for numerous retailers. The increasing use of AI in reverse logistics aims to save retailers money and prevent honest shoppers from bearing the cost of fraud through higher prices.

Using AI to fight fraudulent returns

Retailers are trying to cut down on the cost of fraudulent returns by using AI. Courtney Reagan joins us now from Valencia, California, with that story. Courtney, good morning. Hi, good morning, Joe. It's good to see you. So, these boxes are full of unwanted retail goods. This Happy Returns hub says it does about 40% of the year's volume of processing returns during this month and last. Around 9% or $75 billion worth of return goods are fraudulent. And Happy Returns is using AI to try to detect more instances in order to save retailers from paying out the cost of fraudulent returns, but also honest shoppers from absorbing fraud costs in the form of higher prices. Now, 25 employees and about 10 times as many robots process, aggregate, and then ship millions of returned items every month, but only after inspecting and scoring each for possible fraud using both humans and AI. Happy Returns, which is owned by UPS, accepts unboxed returns for Gap, Shein, Under Armour, and hundreds more retailers at 8,000 different return bars at Ulta, Staples, and UPS locations. The box-free return allows the employees to do a first-line inspection to score every item. From medium to high-risk fraud, those scores are separated, then photographed with an AI analysis to detect possible decoys that the human eye can miss. About 15% of the items that we flag as high-risk returns that are audited here end up actually having fraud. And on average, those transactions are worth about $240, meaning the retail price that the shopper paid for those returns that they're attempting to defraud the merchant on. So even finding small numbers of fraud can be really meaningful when you're talking about a $240 transaction. Happy Returns says it's the only reverse logistics firm that's using AI to detect fraud at the point of return. Now, Navar is using AI to detect fraud when it comes to potential delivery claims, a shopper saying, hey, this item was never delivered, I need my money back. And they are able to reduce the payouts of fraud cases by 25% for 1,500 retailers, including Lululemon and DSW. Joe? Very good, Courtney. And I can always count on you. Somehow you're going to get the shrinkage and leakage and all these things that none of us... I love returns. You know I love returns and reverse logistics. It's really interesting stuff. I've done a few of those. after they return a good. But I will tell you. And you're right. And what is the total number? I mean, when you bank a sale and you think, wow, this is a done deal, it's not. How much comes back? Have you ever heard of a total number? Yes. Yes, that's a great question. So there is a much higher percentage of items that are ordered online that are returned. Something is around 25% to 30% of all online items are returned. In-store, it's lower. It's around 10% to 12%. But then there's a category like women's dresses I saw just recently. 90% return rate. And a lot of that is because women will bracket or you'll buy three different sizes. And at most, you plan just to keep one. By the way, the retailer paid to ship it to you and then paid for you to ship it back. You know what's really weird, too, Courtney? I'm thinking about Saks and everything they have. All those vendors that trusted the company. And the company will say they can't be in business without getting items. But they'll say, oh, yeah, we're money good. They were never money good. And then they screw it up and this happens. It goes right down the food chain on people that are affected that are never going to get paid for stuff. It does. It does. There's a lot of issues there, certainly. Like a scam. Bankruptcy. Guess you got to do it. Thanks, Courtney.

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Using AI to fight fraudulent returns

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