This is a standard option for many merchants - exchanging for a different product. At the moment, as you already know, there are only Variant Exchanges, meaning you can only exchange for another variant of the same product.
So, in this case, we've devised a solution for you to make this option available for your customers and suit your returns process.
To accomplish this:
do not turn off the Variant Exchange option - leave it as is, so customers can be able to exchange for a different variant
In Return Settings -> General, right next to the Exchange Product option, enable one of the Custom options, giving it a name like "Exchange for a different product" (example).
As a result, the customer can either select the dynamic variant-exchange option or the custom option and type in the text box the different products they would like to exchange for.
Stay tuned for future updates on Exchanges for different products!