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X-Rayted Files: E-Commerce Boom Fraught With Risk—X-Rays to the Rescue

It’s not news that online sales are increasing dramatically during this global pandemic. Consumers who were already comfortable with e-commerce transactions have shifted even more of their purchases online, and those who had been resistant to the transition are finding themselves pushed into it. However, with increased sales comes the increased risk of return fraud and abuse, which was already too common with e-commerce.

According to Forbes ^[1], year-over-year e-commerce revenue is up 64%, with online retail orders up a whopping 164%. Consumer electronics have seen a particularly steep gain of 50% to nearly 300%, depending on the subcategory.

This rapid growth has made online retailers the target of fraudsters of all degrees of sophistication. From low-tech brick-in-box to carefully crafted counterfeits, online sellers are being inundated with fraudulent returns. Processing centers are accepting returns and issuing refunds, only to find upon a later inspection that the package was merely filled with dirt to match the expected weight. Such plots often succeed in an environment in which systems are overburdened with the volume of returns and the expectations of prompt resolutions and refunds.

Even more challenging for those engaged in e-commerce is the detection of dummy and counterfeit merchandise. Should it be decided to open every returned package to visually inspect the contents for bricks and dirt, the next level of fraudster is already ahead of you. Can you tell these three phones apart (Figure 1)?

Figure 1: An authentic Apple iPhone, a knock-off, and a dummy phone.

You can see an authentic Apple iPhone, a knock-off, and a dummy phone. Both fakes are exceedingly hard to differentiate from the real McCoy, even under visual inspection. Again, because of the pressure to compete on great customer service, the volume of returns can make it difficult to evaluate returns before refunds are issued. The ability of return logistics infrastructure to quickly and accurately segregate legitimate from suspect returns is quickly becoming an important factor influencing an enterprise’s bottom line.

As online retailers grapple with developing their return logistics strategies, they are confronted with competing forces of providing consumer-facing return policies that don’t hamper conversion rates while establishing internal return-processing protocols that limit inventory losses and restocking expenses. These internal processes can rely heavily on experienced, well-trained staff who are experts in the organization’s product mix. Even with such a dedicated team processing returns, opening boxes and performing visual inspections is not only inefficient, but it still risks missing the most sophisticated counterfeits. Enter X-ray, but not just any X-ray—high-resolution automated X-ray inspection.

Electronics manufacturers have long known the value of utilizing high-resolution X-ray inspection for validating components and interdicting counterfeits. The non-destructive nature of X-ray its relatively low- cost and the speed with which it can accurately examine high volumes of samples have made it an invaluable tool. Leaders in e-commerce are beginning to integrate X-ray inspection into their return logistics infrastructure to quickly and accurately verify contents and validate the authenticity of returns.

X-ray inspection is particularly adept at validating electronics, from chips to boards to finished product, so the leap to implementing it into the returns process for online retailers of consumer electronics seems somewhat obvious. Let’s take another look at those same three phones under X-ray in their boxes (Figure 2).

Figure 2: X-rays of the three phones from Figure 1 in their boxes.

As you can see, the differences are clear. If you haven’t seen an X-ray of an authentic iPhone, you probably don’t know which one is real and which is the knock-off, but the dummy phone with a weight in it is abundantly clear. A bag of dirt would be even more obvious. With a little bit of training, an operator can spot the difference in the less than 30 seconds it would take for the system to process the next item. Beyond electronics, X-ray inspection is valuable in evaluating just about any product worth counterfeiting, from luxury handbags to high-end watches. Online premium retailers, where return rates can be as high as 50%, will find the cost-to-benefit ratio of X-ray inspection especially appealing.

Lost or decreased revenue from returns hurts the entire ecosystem. Even returns that don’t involve fraud or abuse can soften market value for products that inadvertently flood open-box sales channels. Manufacturers may even see some of these returns trickle back to them in the form of RTVs. Supporting retailers in their efforts to mitigate risk is in everyone’s interest. Put your thinking caps on and get to work developing ways to the support return management efforts of your retail partners.

As X-ray begins to play a greater role in risk mitigation within e-commerce return logistics protocols, watermarks in packaging that are visible only under X-ray inspection, and image libraries of both genuine product and known counterfeits, for example, may be ways to contribute to their efforts at curbing the flood of counterfeit goods. Let’s put the bad guys back on their heels.

Reference

1. L. Columbus, “How COVID-19 Is Transforming E-Commerce,” Forbes, April 28, 2020.

Dr. Bill Cardoso is CEO of Creative Electron.