This Merchandise Returns Startup Tackles the $9B Fraudulent Returns Market

Fraudulent returns cost big box retailers a large chunk of money every year — a recent study found that retailers lose more than $9 billion from fraudulent returns a year. Just from last holiday season, retailers estimated that more than 5 percent of holiday returns are expected to be fraudulent.

When a consumer makes a return, the retailer may ask for a name and contact information as a way to keep track of the return. However, right now, the retailer has no efficient way to gather that data and spot fraudulent returns in time.

With a background in retail IT and point of sale applications, entrepreneur Barbara Jones saw this problem firsthand in her work with retail enterprises through her consultancy, Lillii RNB. Her solution, Freeing Returns, originally came about as a hackathon idea at the 2015 ATDC/Worldpay Fintech pitch competition.

The idea ended up taking the Best in Show award. The startup has grown through the female entrepreneurship program LaunchPad2x and is now part of the pre-accelerator program It Takes a Village at the Atlanta Tech Village.

“We wanted to mobile-based returns to make it easy for customers to be able to return their items back to the store,” says Jones. “At the same time, make sure that on the back-end, we’re protecting the retailer against fraud.”

The platform provides a solution to tackle those billion-dollar losses that retailers experience annually due to fraudulent returns — an issue that now includes organized retailer crime rings, according to Jones. “Often by the time the retailer finds out, it’s too late. The individual or group has already stolen millions and has moved on to the next mark,” says Jones.

After validating her idea, Jones decided to move full-speed ahead. Thanks to her previous relationships with retailers, she was able to tap into those connections and start building a viable MVP that would address fraud issues. They also interviewed 100+ consumers to see what their pain points were when returning merchandise.

“The businesses go hand in hand,” says Jones. “We’re doing our customer discovery by talking to our consultancy retailer clients and vendors in the space about their current fraud issues. We’re building the platform to focus solely on those return issues.”

It all comes down to tracking the return data, says Jones. Once the retailer syncs up with Freeing Returns’ platform, they are able to keep track of trends and patterns over time, and signal which customer could potentially abuse the return policy. On the consumer side, customers can return their merchandise through the app versus standing in long lines at the store.

Most of the fraudulent issues occur through gift cards, store credit, and when no receipt is available when returning an item.

“You have to start at the top of the sale and be able to track your sale so when someone is bringing something back, even if you don’t have the receipt, you should still be able to find that transaction,” says Jones. “That’s what we’re introducing with this platform — gathering all of the sales data so we can pinpoint what should be coming back based on what was sold.”

Currently they are tackling the mid-market and smaller retailer to create a proven record to approach big box retailers at a later time. The revenue model is set up as SaaS with a 2.5 percent recovery fee based on any detected fraud.

“For those businesses that can’t afford fancy POS systems or afford fraud protection, we pivoted to smaller tier 2, tier 3 retailers,” says Jones. “We’ve found our niche in these smaller businesses since they don’t have robust systems available. We have an Ohio-based early adopter as well as a prospective Atlanta-based retailer.”

While Jones and her team pitched at 2017 Venture Atlanta, they are continuing to bootstrapp for the time being and self-funding through her second business until they are ready to expand the team.

Up next, the Freeing Returns team is working on a partnership with an ATDC one-day shipping startup to provide pick up via their app for customers to return their items versus dropping by the store.