When you're shipping out valuable products to people you barely know, there's always a voice in the back of your mind: “What if they don’t pay? What if they don’t return it? What if this is a scam?”

Fraud might not happen every day, but when it does, it costs you time, revenue, and inventory — fast. And in a world where subscriptions are booming and expectations are high, you can’t afford to let things slip through the cracks.

That’s why having a real fraud prevention strategy isn’t optional anymore. It’s essential.

Especially for Product-as-a-Service businesses, the stakes are higher.

When you're not just offering access, but sending out a physical product, every fraud attempt puts your inventory — and bottom line — at risk. From high-value items like bikes and electronics to smaller but still costly gear, every item shipped is real money on the line. And unlike digital services, you can’t just revoke access — once the product is out, you’re exposed.

So what does subscription fraud actually look like?

It’s not always obvious — and it doesn’t always involve a criminal mastermind. Sometimes, it’s just everyday users taking advantage of the system.

- A customer who keeps swapping products but never sends anything back.
- A subscription that’s cancelled — but the product isn’t returned.
- An order placed with an identity that almost looks legitimate.

And when your operations team is handling hundreds of orders, it’s easy for small things to slip through. Until those “small things” start quietly chipping away at your margins.

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Here are the most common types of fraud that show up in subscription businesses:

Common types of fraud subscription businesses encounter

1. Chargeback Fraud
Customers dispute legitimate charges, claiming they didn’t authorize the transaction or never received the product.

2. Subscription Chargeback
A customer uses the service and later denies the charge — often after extracting full value.

3. Synthetic Identity Fraud
Fake accounts created using a mix of real and false information to open subscriptions under a false identity.

4. Stolen Credit Card Fraud
Stolen cards are used to subscribe — the charge goes through, the product goes out, and the chargeback hits you later.

5. Unauthorised Reselling
Fraudsters subscribe with the intention to resell products, violating terms and undercutting your pricing.

6. Endless Swapping
A customer keeps swapping products over and over without returning the original — slowly accumulating inventory without paying more.

7. No Return After Cancellation
A customer cancels their subscription but never returns the product — and the business eats the loss if systems don’t catch it.

8. Failed Payment Fraud (a.k.a. Soft Defaulting)
Customers remove payment methods or let cards expire so payments fail — but they keep using the product until someone notices.

9. Exploiting Operational Gaps
In high-volume operations, small things slip through: missed returns, unprocessed swaps, or ignored payment failures — not intentional fraud, but still harmful.

By understanding the types of fraud that commonly affect subscription businesses and implementing comprehensive fraud prevention measures, companies can protect their revenue, maintain customer trust, and ensure long-term success.

How to prevent fraud in a subscription business for physical products

When you're running a Product-as-a-Service model, every item you ship is an asset at risk. Digital services can cut access with a click. But physical products? Once they're out the door, the risk is real — and the cost is higher.

Here’s how to protect your business at every stage of the customer journey:

1. Verify customers before the first order

Before shipping anything, verify that the customer is who they say they are — and that they’re likely to pay and behave responsibly. There are a number of credit and identity check services on the market, each offering different levels of depth and automation. Some perform basic checks using name and address, while others pull in extensive data sets from credit bureaus, financial behavior, and even device fingerprinting.

However, the quality of these checks depends heavily on geography. In some countries, detailed credit data is easily accessible. In others, privacy regulations limit what’s available. Choose a provider that aligns with your region and risk level — and decide whether checks should lead to automatic rejections or manual review.

2. Define product-level rules and restrictions

Not every product in your inventory needs the same level of access. Some are high-value and more prone to misuse; others may be consumables or accessories. By setting clear rules — such as how many items can be rented at once, who can access certain categories, or how often swaps are allowed — you reduce the chance of abuse slipping through unnoticed.

These rules should live inside your system and be enforced automatically, not rely on someone remembering to check manually.

3. Delay replacement shipments until returns are confirmed

One of the easiest ways to lose inventory is by shipping a replacement before the original is returned. Especially in cases of product swaps, this becomes risky. A good safeguard is to hold the new shipment until the return is physically confirmed — even if the order is technically created. This adds friction for misuse but feels seamless to honest customers.

It’s a simple policy that can save you thousands in lost assets.

4. Block risky actions when payment fails

Missed or failed payments aren’t always malicious — but if left unchecked, they can quickly lead to losses. When a customer removes their payment method, lets their card expire, or triggers multiple failed attempts, the system should respond.

Automatically blocking swaps, upgrades, or renewals in these cases is a smart safeguard. It protects your business while creating a natural moment to re-engage the customer and recover the payment.

5. Automate return follow-ups and consequences

Product returns are where a lot of businesses lose money — not because customers refuse to return, but because no one’s watching closely. That’s why it’s important to define what counts as “on-time” (e.g. within 7 days of cancellation), send reminders, and, if needed, apply consequences automatically.

In some cases, that could mean charging late fees. In others, it could mean reactivating the subscription and continuing to charge until the product is returned. The key is to avoid relying on manual tracking.

6. Monitor behaviours that signal misuse

Fraud isn’t always obvious. Sometimes it’s a pattern that builds over time. That’s why tracking behaviors — not just single transactions — is critical. Red flags include:

• Multiple subscriptions to the same address or customer
• High frequency of swaps or missed payments
• Delayed returns after repeated cancellations

Your system should help surface these patterns early, so your team can take action before it becomes a bigger issue.

7. Use your offline presence to your advantage

If you operate physical stores or offer setup and delivery services, you have a major fraud prevention tool at your disposal: in-person contact. For larger items like bikes, mopeds, or fitness equipment, asking the customer to pick up the product from the store can serve as a light identity verification step.

Likewise, if your team delivers and installs products, you get a chance to verify the address, confirm someone is present, and even collect a signature or ID if needed. These real-world touchpoints add a valuable layer of trust — especially when combined with digital checks.

How circuly helps you prevent fraud

All the strategies above are powerful — but only if they’re enforced consistently, automatically, and at scale.

circuly was built for physical product subscriptions, which means fraud prevention isn’t an afterthought. It’s embedded into the way the system works — from checkout logic to subscription lifecycle management.

Here’s how:

1. Real-time credit and identity checks at checkout

circuly integrates with credit check and identity verification providers like CRIF and CreditSafe to assess a customer’s risk profile before an order is placed. The checks are triggered directly in the checkout process — based on just a name and address — and the result can either block the order or send it into manual review.

2. Built-in business logic to block risky behaviour

In circuly, you can set operational rules like:

• How many swaps a customer is allowed
• Which products can be swapped
• Whether a new product can be shipped before the old one is returned
• Whether swaps are allowed when payments are outstanding

These rules run in the background — no need for your operations team to manually check or approve each case.

3. Return enforcement and subscription reactivation

If a product isn’t returned after cancellation, circuly automatically reactivates the subscription and continues charging. You define what counts as a late return (e.g. 7 days), and the system takes care of the rest.

This prevents products from going missing — and revenue from stopping too soon.

4. Payment logic and failed payment handling

circuly handles failed payments intelligently. You can configure retries, fallback schedules, and even custom rules like “don’t allow swaps or cancellations if payment hasn’t gone through.” It’s not just automation — it’s automation with control.

5. Data visibility across customers, assets, and payments

circuly gives you granular insights into subscription behaviour — including:

• Number of swaps
• Failed payment attempts
• Time between cancellation and return
• Asset-level history (repairs, returns, cycles)

This helps you identify misuse before it turns into full-blown fraud.

Fraud prevention isn’t about stopping customers — it’s about protecting your business, inventory, and margins without slowing things down. circuly gives you the tools to do just that.

Bonus: Understanding how credit checks work

E-commerce businesses use credit checks to evaluate the creditworthiness of their customers and mitigate risks associated with non-payment and fraud. Here's how credit checks are integrated into e-commerce operations and how they function.

How credit checks work in eCommerce

• Obtaining Consent: Before performing a credit check, e-commerce businesses must obtain the customer’s consent. This is typically done during the account creation or checkout process.
• Requesting the Credit Report: Once consent is obtained, the business requests the customer’s credit report from a credit bureau. The request includes the customer’s identifying information, such as name, address, and Social Security number.
• Generating the Credit Report: The credit bureau compiles the customer’s credit history, including information about credit accounts, repayment history, outstanding debts, and any public records like bankruptcies. This data is used to generate a detailed credit report.
• Calculating the Credit Score: The credit bureau also calculates a credit score based on the customer’s financial behaviour. Factors influencing the score include payment history, credit utilisation, length of credit history, types of credit accounts, and recent credit inquiries.
• Reviewing the Report: The e-commerce business reviews the credit report and score to assess the customer’s creditworthiness. High-risk customers may be flagged for additional verification or may be required to provide alternative payment methods.
• Making Informed Decisions: Based on the credit report, the business makes informed decisions regarding the transaction. For example, they might approve or decline financing options, adjust credit limits, or request a different form of payment.

By incorporating credit checks, e-commerce businesses can better manage financial risks, prevent fraud, and offer tailored services that enhance customer satisfaction and loyalty. This proactive approach not only protects the business but also contributes to a more secure and trustworthy shopping experience for customers.

circuly + CRIF to prevent subscription fraud

circuly has partnered with CRIF Buergel to support circuly's customers in preventing chargebacks and subscription fraud. Learn more about subscription fraud prevention through credit checks.

Learn more about circuly's credit check and fraud prevention for subscription-based business models.

About circuly

circuly is a B2B subscription management software solution that enables companies to launch, manage and scale a subscription-based business mode and thus brings sustainability and circularity to e-commerce. With the help of the circuly solution, retailers and manufacturers of consumer durable products can make their business circular, add a recurring revenue stream, extend the product lifecycle, reach new customer segments and achieve their sustainability goals. circuly makes the process of renting products online as seamless and scalable as traditional sales, revolutionising the way businesses operate in the digital landscape.