Fraud management is a critical aspect of the payment industry, as it ensures the safety and security of both consumers and businesses. The rise of e-commerce and digital payments has led to an increase in fraudulent activities such as account takeovers, payment fraud, and identity theft. Statista.com estimates that in 2022, e-commerce merchants lost $41 billion worldwide from online payment fraud. This value exceeds the figures for 2021 by 2 times. According to Juniper Research, cumulative merchant losses from fraudulent activities are projected to exceed $206 billion between 2021 and 2025. Thus, to protect against such threats, companies often employ blacklisting and whitelisting techniques. Read our comprehensive guide to blacklisting and whitelisting as fraud management methods in payments to ensure your financial transactions’ security.
What Are Blacklisting and Whitelisting?
Blacklisting is a tool used in the payment industry to prevent fraudulent activity. It involves creating a list of known deceitful entities or individuals and denying them access to payment services.
Whitelisting, on the other hand, involves creating a list of trusted entities or individuals and only allowing access to payment services for them.
Blacklisting and whitelisting can be effective in reducing fraud, but they can also lead to false declines of legitimate transactions if not implemented correctly.
How Can Blacklisting and Whitelisting Identify Suspicious Activity?
Blacklisting and whitelisting can both be used to identify suspicious activity in different ways. Further, in our article about blacklisting and whitelisting as fraud management methods in payments, we will explain how these methods function.
By keeping a list of known fraudulent actors or transactions, the system can flag any new activities that match the characteristics of those on the list. For example, if a particular credit card number was associated with fraud in the past, any future transactions with that credit card number will be automatically rejected.
Additionally, IP addresses, emails, phone numbers, and other identifying information can also be blacklisted if they are known to be associated with fraudulent activity.
By only allowing members or transactions that are on a pre-approved list, the system can flag any new activities that are not on that list as suspicious. For example, if only certain IP addresses are allowed to access a particular system, any new IP addresses that attempt to access the system will be transmitted as suspicious. The same goes for credit card numbers and their types, phone numbers, classes of devices, etc.
Besides, companies can create a whitelist of categories of transactions that are considered less susceptible to fraud, for example, payments above a certain amount. Any transactions that fall outside these parameters will be marked as false.
The Pros and Cons of Using Blacklisting and Whitelisting as Fraud Management Methods in Payments
Despite being, effective fraud detection methods, both blacklisting and whitelisting have their own advantages and disadvantages.
Advantages of blacklisting:
Disadvantages of blacklisting:
Advantages of whitelisting:
Disadvantages of whitelisting:
How can blacklisting and whitelisting as fraud management methods in payments be combined?
Blacklisting specific credit card numbers, IP addresses, emails, phone numbers, and types of devices while whitelisting certain types of those parameters can be a great strategy. For example, businesses can create a blacklist of credit card numbers that have been associated with fraud in the past while also creating a whitelist of credit card types that are considered less susceptible to fraud. This can assist in preventing suspicious transactions while also allowing legitimate ones to go through.
In conclusion, companies can create a multi-layered strategy by uniting blacklisting and whitelisting as fraud management methods in payments. However, it’s important to keep in mind that they should be integrated with other fraud detection techniques such as machine learning and behavioral analysis for a more comprehensive solution.
UniversePAY offers its merchants the opportunity to use blacklists and whitelists. Your business is maximally protected from risky operations due to our anti-fraud system. Start your cooperation with UniversePAY now by filling out the form below or emailing us at email@example.com