A Max Levchin-Backed Startup Raises $19 Million To Tackle Online Returns

Photo: facebook.com/pg/returnly

A San Francisco-based startup called Returnly is seeking to solve at least a portion of the headache—namely, the payment delay—by issuing instant store credit when you decide you don’t want an item. The company says that by assessing a shopper’s risk, it can offer store credit to 85% of customers on the spot, without first requiring that the item has been received or even put in the mail.

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Returnly announced on Wednesday that it has raised $19 million in a Series B funding round, led by venture capital firm Craft Ventures and with participation from Max Levchin, the PayPal cofounder who currently runs Affirm. This brings the company’s total funding up to $30 million. It also took out a line of credit earlier this year that enables it to finance $300 million in returns.

The company, which works with thousands of retailers like Rothy’s, Untuckit and Fanatics, was launched in 2016. The first return it processed came from a customer who spent $75 on foundation, sight unseen, and wound up with the wrong shade for her skin tone. She was issued instant store credit, which she then used to buy the foundation in a different shade, in addition to throwing in a lipstick.

Returnly offers store credit, rather than cash, in the hope that shoppers will spend the amount they are credited and then some. It seems that the company’s customers have done just that. Nine in ten have ordered a second item before they even shipped the first unwanted item back, the company says. They’re likely to outspend the original size of their order, too, by 23%.

“When we do credits, because it’s a better shopping experience, consumers end up buying more from participating stores,” says Returnly’s founder and CEO Eduardo Vilar. Adds Jeff Fluhr, a partner at Craft Ventures and the founder of StubHub: “The retailer gets a revenue-generating opportunity while the consumer gets instant gratification.”

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Amid the e-commerce boom, a throng of companies have materialized that are eager to help consumers spend more money when shopping online. Most notably, companies like Affirm and Klarna frequently offer easy loans at checkout, with interest rates ranging from zero and going well into the double digits. Such financing has fueled online sales, which are expected to surpass $600 billion in the U.S. in 2019, according to eMarketer.

Of course, a lot of this merchandise ends up going back. In 2017, over $100 billion of items that were purchased online were returned, according to the U.S. Postal Service’s Office of Inspector General. Online purchases are three times more likely to be returned than those made in a physical store.

Returnly is poised to profit from all these returns.  It has processed close to $200 million in returns in the last three years, taking a cut on each transaction. It also charges merchants an annual subscription fee.

In order to extend store credit the way that it does, it depends on data from its merchant network to assess a shopper’s risk. This essentially means it analyzes a consumer’s past shopping activity at the retailers that it works with to make a decision. “Our whole business model is predicated on the network effect,” says Vilar.

Returnly then assumes the risk that a product is never returned, whether that’s because a customer fails to ship it back in the first place, it arrives damaged or it gets lost in the mail. The company declined to disclose any figures surrounding how many items are never returned. Its avenues for recourse appear limited. In such an event, says Vilar, it can nudge a customer over email or try to make a return easier by sending a printed return label in the mail, for example, or scheduling the pickup of an item.

Lauren Debter, Forbes Staff