Fighting Fraud in the Reverse Logistics Boom


Fighting Fraud in the Reverse Logistics Boom

ome time ago, the National Health Service (NHS) provided free ambulance pick-up and drop-off to emergency patients in the United Kingdom. I am told by many of my surgeon friends in the UK that this service was eventually stopped due to heavy misuse by Asians. Many Asians living in the suburbs would feign a medical emergency and avail of the free ambulance service with the intention of getting a free ride to the city centre to shop. The NHS has now converted this service to a paid service unless the doctor writes off the fare — in case of an actual emergency.
 
To garner consumer trust in the e-commerce environment, e-commerce players harped on free returns to change buying patterns; this ushered another industry into the country — reverse logistics.
 
When we started UsedYetNew.com, we focused heavily on consumer experience, but very soon we had to focus our attention on ‘buyer fraud’. On facing several instances where buyers cannibalised genuine parts, replaced them with fake ones and returned the products, we ensured that the entire process of packaging and return was recorded on video.







There are multiple layers of  fraud that e-commerce players are finding it difficult to cope with, and a couple of these are listed below:
 

  1. Buyer exchange fraud: To push sales of new launches, major e-commerce players embarked on an exchange policy. The exchange fraud rate was observed to be about 40% for mobile phones and 90% for large appliances, even in the posh localities of Hyderabad. For example, buyers would exchange an air-conditioner for a new one, wrongly claiming the full functionality of the old  AC. We know that major e-commerce players have still not figured out a scalable approach to resolve this issue.
     
  2. Unboxed return fraud: Not having deep pockets to strike deals with major e-commerce players, we began buying brand new products that were returned by buyers for various reasons (e.g. AC indoor shipped was different to the outdoor). During our internal quality control process, we observed that about 40% of the original parts were cannibalised/ removed. For instance, a small circuit board costing approximately Rs 7,000 was removed from the AC. Clearly, the buyers were not capable of carrying out this type of ‘technical fraud’ themselves; however, we soon realised that multiple middlemen bought these unboxed goods, removed important parts from them and resold them to retailers (in the B2B space). We are now aware that Flipkart is undertaking CRISIL verification of its vendors to prevent this type of fraud.

 





We all are aware that major e-commerce portals do not allow returns on electronic products such as mobiles unless the manufacturer ratifies that it is indeed defective (though I often wonder why such products are not returned to the manufacturer for defect rectification). Despite making the ‘return’ barrier so high, tens of thousands of a type of a mobile return to the e-commerce base camps to feed the already growing ‘reverse logistics’ industry. Since the majority of us are on the ‘buyer’ side of the e-commerce portal, we constantly discuss seller fraud, but thanks to ‘buyer fraud’ or ‘misrepresentation of actual information’, an already existing billion dollar industry in the west is slowly growing its roots in India.  
 
So think before you press return!



About the author :
This article has been written by Rishi Raj Singh, alumnus from PGP Co 2011. Rishi is the Founder of  www.kitchensfood.com and www.usedyetnew.com.


Also read: The Growing Relevance of Reverse Logistics in IndiaInstitute in Focus | Reboot Systems’ Refurbished Computers: A Frugal Solution for Digital Divide | Reverse Logistics: Imperative for Green & Smart Business