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How Retailers Can Use Payments Data to Solve the Growing Problem of Returns

By Kamlesh Nihalani

Customer returning item to store

One of the growing challenges retailers face is the amount of returned purchases they see, a trend accelerating as modern consumers take advantage of the conveniences of online shopping, expedited delivery, and willingness of retailers to accept returned goods and provide a full refund. For example, think of the consumer who orders three different sizes of the same jacket to find the best fit, and then returns the other two. Or the shopper that changes their mind shortly after making a purchase, or decides they don’t like an item as much as they did at the store once they try it out at home.

The inefficiencies returns cause for retailers are enormous: roughly 10% of purchases are returned, adding up to billions of dollars in lost sales each year, with ecommerce purchases sent back at the highest rates. According to the National Retail Federation, for every $1 billion in sales the average retailer incurs, $106 million in merchandise returns. When compounded with the expense of returns delivery, packaging, restocking, and damaged goods, the true cost begins to mount.

As ecommerce growth continues to increase return volumes, how can retailers mitigate the adverse impacts of returns before they happen?

Using Payments Data to Profile Chronic Returners

Through our Carat omnichannel commerce ecosystem, Fiserv provides technology that enables many of the world’s most recognized brands to sell goods across physical stores and digital channels. With insight into the payment activity occurring across billions of transactions each year, Fiserv can help retailers better predict consumer behavior. This includes creating an anonymized profile with attributes for “high returners”.

Based on Fiserv research, the majority of all returns are made by 1-5% of U.S. consumers. And for some merchants as much as 60% of their return volume will come from just 1% of their consumer base.

These telling stats led us to an innovative solution to an emerging problem. If a retailer can identify a profile for high returners, and implement a strategy to incentivize those customers to not initiate a return, it will create a win-win for shopper and seller. How big a win? According to Incisiv’s Newmine State of Industry Report 2021, U.S. retailers can save approximately $125B by focusing on returns reduction.

Turning Data into Actionable Information

Through Carat, Fiserv can help retailers leverage payments data to better understand their customers’ shopping habits; these insights equip the merchant with actionable intelligence that can influence consumer behavior.

Merchants can identify credit or debit cards at the point of sale that have historical payment activity that matches an anonymous profile of high return activity. When these cards are presented online or in store, the merchant can present that customer with an incentive (such as a discount or digital gift card) in real time before the purchase is made if the consumers agrees to make the sale final, with no option to return. Now, for example, if a consumer planning to price shop between two websites for the same pair of shoes is provided an incentive, the chance of unnecessary items being purchased or returned is mitigated.

The key is to influence consumer behavior at the point of purchase in real time. Carat technology leverages APIs to power real-time consumer segmentation and offer incentives that meet the goals of each individual retailer. The beauty is that this leads directly to tangible results, including tracking and reporting measurable impact of merchant actions and consumer reactions. By creating new consumer experiences, merchants can improve the overall consumer experience, thereby increasing consumer loyalty.

Driving Retail Success

Fiserv recently examined a large retailer’s consumer data to identify a profile of high returners at their business. We found that 1% of their consumers account for 20% of all returns, which translates into roughly $40 million in lost sales for their business each year. Fiserv is now in the process of helping this company devise a strategy to provide three real-time incentives to these consumers to prevent the return of merchandise, including:

  • Give them an e-gift card for 5-10% off the transaction
  • Offer customers free shipping on their next online order
  • Provide a free product worth 5-10% of the transaction total

By optimizing the returns process, Fiserv is helping merchants deliver customer-friendly incentives at the point of sale that provide value to the customer, while mitigating the rising costs of returns. Doing so allows the business to limit cost inefficiencies, retain sales, and reduce its environmental impact – all while delivering an enhanced purchasing experience to its most loyal consumers.

To learn more about strategies for optimizing returns at your business, contact us today.

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