Small shop owners across Britain are increasingly falling victim to a new type of image fraud, where customers use artificial intelligence (AI) to create fake photographs claiming purchased products arrived broken. This rapidly growing trend is forcing independent retailers to lose money and goods to dishonest shoppers.
How the scam works
Corrupt shoppers are using AI technology to alter photos of products to depict damage, then claiming a refund or replacement. Because return postage costs are often prohibitive for smaller shops, many owners simply refund the cost or send a replacement as a gesture of goodwill. This leaves the fraudster with the original product and the refund or replacement, which they can resell on platforms like Facebook Marketplace, eBay, or Vinted.
Real-world impact
Jason Guy, 54, who runs Make Up or Break Up with his husband Ian, 37, has experienced this firsthand. Their business, launched in 2014, has a £2 million annual turnover selling festival and Pride accessories from a physical shop in Manchester's Afflecks market and three e-commerce websites. With thousands of weekly orders, they routinely handle damaged goods. Traditionally, Jason asked customers for a photo of the broken item to process a refund, saving on return postage. Now, customers are using easily accessible AI tools to doctor images, making perfect items appear crushed or ruined.
Jason explained, "It takes five seconds of work. You can just put a picture into an AI tool and ask 'make this look damaged in the post,' and out comes a damaged postal picture."
Fighting back
Jason, a former head of digital marketing for HSBC, is uniquely equipped to spot fakes. He credits his and Ian's autism and ADHD for their heightened ability to spot visual anomalies and digital deception. He also notes that dishonest customers often use AI chatbots to write complaint emails, giving themselves away with overly elaborate excuses compared to straightforward messages from genuinely inconvenienced shoppers.
Despite intercepting about a dozen fraudulent attempts weekly, Jason worries for less tech-savvy independent retailers. He advises, "If you're a retailer in any doubt over pictures that a customer sends, ask them to send a video and move their hand about over the product at the same time. AI can't cope with that."
Expert advice
Catherine Britton, head of fraud risk at Starling Bank, said: "Image fraud is the latest battlefield for retailers, who are having to get savvy fast as fraudsters use AI to generate highly convincing fakes. For time-pressed business owners, spotting these AI-altered images isn't always easy, leaving many to rely on dangerous guesswork."
She added that AI can also help combat the problem: "At Starling, we offer free Scam Intelligence in-app. Business owners can message our AI assistant to check if an email shows signs of invoice fraud, or upload an online marketplace photo to gauge if a listing is a scam, and we're constantly enhancing it to catch even more. If you spot a suspected scam, don't just delete it, report it to Report Fraud. If you've already transferred money then notify your bank immediately. Early reporting helps us block fraudsters before they move on to the next small business."
With fraud costing UK businesses over £5 billion a year, staying vigilant against tech-driven scams is crucial.
