Retailers Implement AI and Return Fees Amid 3.9% Increase in Holiday Fraud Attempts – Friday, December 26, 2025

Retailers are increasingly deploying artificial intelligence (AI) and introducing return fees to address the surge in fraudulent return attempts during the holiday season. These strategic measures aim to protect profitability and manage the escalating costs linked to return fraud.

Who should care: VPs of retail, store operations leaders, eCommerce directors, customer experience teams, and retail technology decision-makers.

What happened?

Retailers are adopting AI technologies at a growing pace to detect and prevent fraudulent return activities, a challenge that intensifies during the holiday shopping season. The surge in online shopping has amplified return fraud, prompting retailers to implement more rigorous controls. AI systems analyze return patterns and flag anomalies—such as unusually frequent returns or inconsistencies in product condition—that may indicate fraud. Alongside AI deployment, some retailers have introduced return fees as a deterrent and a means to offset the financial impact of fraudulent returns. This combined approach addresses the dual objectives of minimizing fraud while preserving customer goodwill. The holiday season, which sees a 3.9% increase in retail sales according to Mastercard SpendingPulse, is a critical window when return volumes spike, making fraud management especially vital. These initiatives reflect a broader industry trend toward leveraging technology to safeguard margins and enforce fair return policies without alienating genuine customers.

Why now?

These initiatives are timed to coincide with the peak holiday shopping period, historically marked by a rise in return fraud. Over the past 6 to 18 months, a significant increase in online transactions has corresponded with a notable uptick in fraudulent return attempts. This evolving threat has compelled retailers to bolster their fraud detection capabilities and revisit return policies. The integration of AI aligns with the broader digital transformation sweeping the retail sector, where data-driven tools are increasingly used to optimize operations and enhance the customer experience in a competitive environment.

So what?

The adoption of AI and return fees carries important implications for the retail industry. Strategically, leveraging AI to combat return fraud signals a shift toward more sophisticated, technology-enabled operational models that can reduce financial losses and promote transparency in returns. However, the introduction of return fees introduces a delicate balance: while fees may discourage fraud, they also risk alienating loyal customers if not implemented thoughtfully. Retailers must carefully manage this tension to protect their brand reputation and customer relationships. Success will depend on clear communication and policies that uphold fairness while deterring abuse.

What this means for you:

• For VPs of retail: Explore AI solutions that enhance fraud detection accuracy and streamline return workflows to safeguard profitability.
• For eCommerce directors: Assess current return policies critically and evaluate the potential benefits and risks of introducing return fees.
• For customer experience teams: Develop clear communication strategies to explain policy changes and maintain customer trust during the transition.

Quick Hits

• Impact / Risk: Return fees and AI-driven fraud detection can reduce fraudulent returns but may also lead to customer dissatisfaction if not carefully managed.
• Operational Implication: Retailers must ensure AI systems accurately distinguish fraudulent returns from legitimate ones to avoid disrupting genuine customer transactions.
• Action This Week: Review existing return policies, evaluate AI fraud detection capabilities, and prepare customer service teams to handle new return procedures effectively.