Amazon backs tech startup to fight $103B return fraud problem

Amazon is stepping up efforts to tackle return fraud, an issue costing retailers $103 billion in losses in 2024 alone.

The company has joined a $12 million seed funding round for Cambridge Terahertz, a Sunnyvale-based startup that has developed compact 3D imaging systems capable of seeing inside unopened packages.

The technology is being pitched as a scalable tool to detect fraudulent returns, improve warehouse operations, and even assist government border control agencies in drug detection.

The funding round was led by Felicis Ventures, with Amazon’s $1 billion Industrial Innovation Fund participating.

This is the latest example of Amazon looking to startups for solutions to pressing logistical problems across its vast distribution network.

Imaging tech shrunk from airport-scale to handheld scanners

Cambridge Terahertz was founded in 2023 by Nathan Monroe following research at MIT.

The company has miniaturised terahertz scanning—originally used in airport security—into a handheld pyramid-shaped device.

This system uses chip-based terahertz imaging to detect the contents of closed packages without opening them, enabling faster fraud detection, improved packaging visibility, and enhanced inventory control.

Initially conceived as a tool for weapons detection through clothing and packaging, the scanner has since attracted commercial interest from multiple sectors, including supply chain management, aerospace, and medical applications.

Cambridge currently employs 10 people and is preparing to scale its technology for widespread industrial use.

Amazon’s logistics push includes supply chain innovation

The investment fits Amazon’s broader push through its Industrial Innovation Fund, which launched in 2022 to invest in startups solving challenges across the fulfilment pipeline.

Cambridge’s imaging system is expected to assist Amazon in multiple areas, from verifying package contents and detecting damages to improving how efficiently items are packed.

The technology is also being considered for integration at various points across Amazon’s operations network, including inventory checks before shipping and return inspections.

Amazon has previously said it seeks commercial partnerships with companies it funds, including pilot programmes or eventual acquisitions.

The Industrial Innovation Fund has already backed 20 startups and facilitated a licensing and acquihire deal with AI robotics firm Covariant in August 2023.

Amazon sees Cambridge’s compact imaging system as aligned with its operational needs, particularly in light of rising cases where customers return empty boxes or unrelated items after receiving refunds.

Potential government use in border inspections and drug detection

Cambridge Terahertz has already secured four government contracts and is in discussions with US Customs and Border Protection over its potential use in detecting fentanyl shipments.

The Trump administration has prioritised clamping down on such imports, particularly those exploiting the de minimis loophole for low-value goods entering the US.

The startup’s imaging tech could offer a non-invasive way to identify dangerous or mislabelled contents in packages at ports of entry.

According to the company, its pyramid-shaped scanner is well-suited for field use, given its compact size and ability to scan through non-conductive materials.

The $12 million funding round will help Cambridge accelerate hiring and move towards full product development.

It originally connected with Amazon through a pitch competition focused on improving packaging visibility.

Past scrutiny over Amazon's investment practices

Amazon’s investment arms have previously faced scrutiny over competition concerns.

A 2020 Wall Street Journal investigation alleged that the Alexa Fund, which invests in AI and voice startups, used confidential information from pitch meetings to launch competing in-house products.

Amazon denied any wrongdoing.

Despite this, the Alexa Fund made high-profile investments such as in video doorbell maker Ring, which Amazon acquired in 2018 for $1 billion.