UPS-Owned Happy Returns Tests AI to Combat Fraud

UPS-owned reverse logistics company Happy Returns reportedly plans to use artificial intelligence to combat returns fraud.

The company is testing an AI fraud detection tool with some clients during the holidays to combat what it said is a $76.5 billion problem for retailers, Reuters reported Thursday (Dec. 18).

The National Retail Federation found that around $849.9 billion worth of retail products are expected to be returned in 2025, the equivalent of nearly 16% of sales. Roughly 9% of those returns will be fraudulent.

To combat this problem, Happy Returns uses a system that employs human auditors and AI, the report said.

When returns arrive at the company’s hubs in California, Pennsylvania and Mississippi, human auditors open the flagged packages and take photographs, according to the report. Those photos are fed into the company’s Return Vision AI tool, which compares them to images and other information about the products expected in the return. Human teams review the AI’s findings and have the final say.

“If you’re returning a pair of $300 boots and you show up with a pair of dirty old sneakers, that should be caught immediately,” said Jim Green, director of logistics and fulfillment at Everlane, one of the retailers involved in the Happy Returns AI pilot, in the report. “What Return Vision does is add an extra layer of protection for some of the not-so-obvious cases.”

Fewer than 1% of the returns in the Happy Returns network are flagged by the tool as having a high probability of being fraud, while 10% of those flagged items are ultimately confirmed as fraud, the report said. The average value of each fraud is roughly $261.

Happy Returns Chief Operating Officer Juan Hernandez-Campos said the tool is becoming increasingly needed as fraudsters grow more sophisticated, according to the report.

Across sectors, scammers employ a dual strategy of manipulating people while also infiltrating financial infrastructure. The situation has raised the stakes for financial institutions and complicated the traditional division of responsibility between consumer vigilance and institutional security.

“A growing body of evidence suggests that today’s most effective scams are succeeding not by overpowering technology, but by quietly subverting trust,” PYMNTS wrote Thursday. “It’s trust between consumers and institutions, and trust embedded in the digital rails that move money at unprecedented speed.”

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