Instant Credit via ML Underwriting for Return Risk
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Solution Overview
Problem
The financial industry faces disruptions in cash flow and increased costs for vendors due to product returns, as refunds can lead to lost sales and additional processing costs, prompting a need for efficient return management solutions.
Innovation Solution
Implementing a data processing platform that uses machine learning to assess the likelihood of product return, enabling instant credit extension to customers for repurchases before the physical return of the product, thereby shifting the return risk to a third party and facilitating timely commerce.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Ease of operation
If a refund is issued to the customer for a returned product, then the customer receives immediate funds, but the vendor experiences cash flow disruption and loses the opportunity for repurchase
Solution Approach 1:
The patent introduces a third-party service provider as an intermediary that purchases returned products from vendors at a predetermined value. This intermediary then issues instant credit to customers based on the returned product's value, eliminating the need for vendors to directly refund customers. The intermediary absorbs the cash flow risk and enables immediate customer credit without disrupting vendor cash flow, as the vendor receives payment for the returned product while the customer receives instant credit from the third party.
2Loss of energy
If a voucher or credit is provided to the customer instead of a refund, then vendor cash flow is preserved, but the customer cannot make immediate repurchases
Solution Approach 1:
The third-party intermediary issues instant credit to customers immediately upon processing the return, rather than providing a voucher that requires physical return first. This instant credit can be used for immediate repurchases, eliminating the time delay while the vendor still receives payment for the returned product from the intermediary, thus preserving vendor cash flow.
3Reliability
If the vendor waits for physical receipt of the returned product before processing, then the vendor can verify the return, but repurchase opportunities are delayed and commerce is interrupted
Solution Approach 1:
The third-party intermediary performs preliminary verification and valuation of returned products before the vendor receives physical possession. The intermediary assesses the returned product's condition and value, then immediately issues credit to the customer. This preliminary action enables instant processing while the vendor simultaneously receives payment, eliminating the wait time for verification without sacrificing reliability, as the intermediary has already validated the return.
4Productivity
If instant credit is extended to customers before physical return, then repurchase volume increases, but the third party assumes the risk of non-return
Solution Approach 1:
The third-party intermediary assumes the risk of non-return by purchasing returned products at a predetermined value before the vendor receives them. The intermediary issues instant credit to customers based on this predetermined value, enabling immediate repurchases. If the customer does not return the product, the intermediary bears the loss, but the vendor is protected and receives full payment. This risk transfer enables high repurchase volume while maintaining system reliability.
Data Source
AI summary
A method of facilitating a product return transaction may include receiving product return data from a merchant indicating merchant-specific information on product returns to the merchant and receiving an indication of a product return request from a customer. The method may further include employing a trained model to determine a likelihood of return rating associated with physical receipt of a returned product associated with the product return request based on the product return data, responsive to the likelihood of return rating exceeding a threshold, extending a credit to the customer based on a value of the returned product, and enabling the customer to initiate a product repurchase using the credit.