Managing a necessary evil: Can payment methods reduce product returns?

• Paying before delivery reduces return rates compared with paying after delivery. • Payment timing does not harm future purchase intentions. • The return-reducing effect of payment timing only holds when shipping is free. • Paying before delivery fosters psychological ownership and perceived return effort. • Retailers can encourage payment before delivery (e.g., through discounts). Product returns represent a serious challenge for online retailers and environmental protection alike. Taking a fresh perspective on effective product return management options, the current study proposes payment methods as a potential driver of product returns. By combining field data from an online fashion and accessory retailer with a laboratory experiment, the authors show that payment before product delivery (e.g., direct debit, PayPal) reduces customers’ product returns compared with payment after delivery (e.g., invoicing, Prime Wardrobe). Psychological ownership and perceived return effort represent the underlying mechanisms that determine the effects of these payment methods on return behavior: If customers pay before they receive the product, they experience stronger feelings of psychological ownership and perceive higher effort to return it. However, this effect only occurs when retailers offer free shipping. Considering that small reductions in return rates can have considerable effects on retailers’ bottom lines and the environment, a tactical approach to managing online payment methods suggests immense potential for sustainable online retailing.