How Smartphone Sellers Can Prevent Reverse Logistic Scams

To many smartphone original equipment manufacturers [OEMs], financiers, and mobile operators, supply chain fraud is often considered a problem that can’t be fixed. A necessary cost of doing business. After all, it’s true that from the moment a phone is transported from the manufacturer to a warehouse or store, it is vulnerable to theft. Criminal gangs often target shipments in transit and make off with thousands – if not millions – of dollars-worth of devices.

Even if a phone successfully arrives at a retailer’s premises or storage facility, the risk of theft persists. In May 2018, for example, three men broke into an electronics company’s warehouse and stole 600 Huawei phones with a combined value of almost $80,000. Adding to the issue of poor physical security, unscrupulous employees have been known to share sensitive information regarding supply chain vulnerabilities with criminal entities. More often than not, this is in exchange for a cut of the profits from the theft. For instance, in 2002, a gang of thieves made off with £4.2 million-worth of top-of-the-range Samsung headsets from a warehouse in London. This, the police believed, had been a theft made possible by inside information.

How reverse logistics fraud works

There are clearly many potential vulnerabilities along the supply chain. However, you’d be forgiven for assuming that the risk of theft is eliminated once a device makes it to the end user. This, however, is not the case, with a worrying trend of reverse logistic scams having emerged in recent years.

What are reverse logistic scams?

Essentially, reverse logistic scams involve a customer ordering a new phone online, only to claim that they never received it. In some cases, they may claim that something else was sent in its stead, such as a brick. The reality, however, is that they have the device in their possession. However, without sufficient evidence to prove this, the retailer is forced to provide a replacement device, or issue the customer with a refund.

In either case, the result is that the customer gets a free extra device that they can either use or sell on for a profit. In other instances, a customer might order a high-end smartphone and then arrange a return, only to send back an inferior and less valuable device.

Meanwhile, some customers might claim to be unhappy with the product they’ve received, telling the retailer that they’ve returned it, when they’ve actually kept it. Again, without any evidence to prove that the consumer still has the phone, the retailer’s left with no alternative but to send a replacement device. This is effectively demonstrated by the case of 22-year-old man from Palma de Mallorca in Spain who conned Amazon out of $370,000. This, he achieved, by sending return packages filled with dirt instead of the original items.

By carrying out this simple scam, the fraudster was able to resell the products and earn hundreds of thousands in illegal income in the process. At least he did until a random spot check uncovered the crime that he’d committed.

And make no mistake, carrying out reverse logistics scams is a crime, but one that can clearly pay incredibly well. Indeed, according to an Appriss Retail report, returns of online purchases – of which smartphones make up a sizable portion – equate to approximately $41 billion. This is where 35% [roughly $14 billion] of returns were fraudulent. As such, it’s evident that OEMs and retailers are haemorrhaging revenue to reverse logistics scams. To make matters worse, many are actually unaware of the extent of the losses that are attributable to this issue.

However, it’s not just revenue losses that manufacturers and retailers stand to incur to these scams – the damage inflicted can also be reputational. This is because, in some cases, counterfeiters and pirates will return packages containing fake or unauthorized products and parts to the seller. These sellers will often then unknowingly sell the counterfeit products onto other consumers.

Any technical issues or security vulnerabilities that are detected as a result of scams will likely reflect negatively on the seller and their brand reputation. This could potentially prompt customers to switch allegiance to another retailer. Given the potential monetary and reputational losses that OEMs and retailers are at risk of, it stands to reason that they will want to mitigate the threat posed by reverse logistics fraud.

How Trustonic helps combat reverse logistic scams

Fortunately for OEMs and sellers, Trustonic has developed a pioneering and proven approach to supply chain control. Using our cloud-based Software-as-a-Service [SaaS] device locking platform, OEMs can ship their devices locked, rendering them worthless for targeting in bulk shipment thefts.

Meanwhile, operators can fully and remotely lock down a smartphone if a customer reports that they haven’t received it. Doing so effectively renders the device unusable and removes its resale value altogether, thereby eliminating the incentive to exploit returns policies in the first place. Additionally, the solution can also be used to manage and control devices in countries where International Mobile Equipment Identity [IMEI] blacklisting is not enforced. This ensures that criminal organizations are not able to exploit these gaps in the defence and sell stolen smartphones on to often unwitting customers.

Thanks to the technology that we’ve created, operators can much more easily manage devices throughout their entire lifecycle. This goes from the point that they leave the factory floor, right through to the point that they are recycled. Furthermore, because phones can be seamlessly registered as missing or stolen, operators can address the scourge of criminal gangs intent on stealing shipments in transit. In doing so, they can gain greater peace of mind that their investments are unlikely to be targeted. In short, the platform offers a 360º solution to supply chain management, ensuring that devices are protected at all stages.

As the challenges supply chain theft poses – fuelled by economic difficulties and the allure of a growing underground economy – continue to grow, so too will the need to strengthen device security. The onus is on OEMs, retailers, financiers, and mobile operators to ensure that this happens.

Our technology stands as a leading solution in helping them to do so. By investing in our device locking platform, operators can simultaneously safeguard their assets and disrupt demand for future criminal activity like reverse logistics fraud.

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