How Does Using Address Verification Service Help Prevent Fraud?
Address Verification Service, or AVS, is one of the most widely used payment card fraud prevention tools in the US. There’s a good reason this; the tool checks the given address of a credit card against the address the bank has on file. By doing this, AVS can help stop fraudulent transactions before they go through.
But, while AVS can help reduce the risk of fraud and chargebacks, it’s not a comprehensive solution. As fraudsters devise more and more sophisticated tactics, the address verification system may be falling behind in terms of effectiveness.
In this post, we’ll look at some of the advantages of address verification. We’ll also see why it often isn’t enough, and explore the role AVS should play in your fraud management strategy.
Understanding the Address Verification Process
- Address Verification Service
Address Verification Service (AVS) is a fraud-prevention tool that verifies that the billing address given by the customer at checkout. The tool matches the address provided against the one associated with the cardholder’s account.
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If you accept card-not-present transactions, including online, phone, or mail-in orders, you know that confirming the identity of the person making the purchase can be hard. The Address Verification Service was created to help solve this problem.
The tool was originally designed by Mastercard to check CNP fraud. The address validation process is now widely used by other major credit card companies, too. Let’s look at how the system works:
- The buyer—not necessarily the cardholder or an authorized party—enters their address at checkout and submits the order.
- The address information is transmitted to the processor, where the given address is compared to the address the cardholder has on-file with the issuer. Note that only numeric values (street number, box number, zip code, etc.) are compared.
- A response code is generated, based on one of 6 conditions: full match, no match, partial match-address, match-zip code, data unavailable, or international address. The entire process is seamless and takes mere seconds.
- If the response code matches, you receive the authorization approval along with the AVS response code. If there's an AVS mismatch, then it flag the transaction.
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If the numbers match up exactly—or if they’re not even close—you’ll need to decide what to do. Addresses will often be a partial match. At this point, you’ll need to decide whether to proceed with the transaction using your best judgement.
You can also set up accept/decline parameters to automatically trigger a decline if certain codes are returned. This practice is not without its risks, however, as we shall see.
The Upside of AVS
The Address Verification Service is not perfect, but it has its uses. For starters, it adds an extra layer of security protecting both you and your customers.
AVS was designed to detect traditional criminal fraud, and it is very effective at doing that. AVS will flag a transaction submitted by a criminal using a stolen card, who has no idea what the cardholder’s address could be.
The address validation process works accurately in such situations. AVS codes are designed to provide guidelines, though…not absolute answers.
One of the main limitations of a system that only analyzes numerals is that it affords a lot of room for interpretation. When users provide a billing address at check-out, it’s most likely coming off the top of their heads. No one is stopping to look up the exact address they gave the bank when applying for the card.
Maybe they put down their apartment number, maybe not. Maybe they used their 9-digit ZIP code. They could even mistype, hitting 0 instead of 9. There are several small variables that wouldn’t actually change the billing address, but which might keep it from being an exact match. And this can create a much bigger problem than you might think.
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Free DownloadThe Challenges of AVS
The fraud landscape is changing rapidly. Fraudsters are happy to take advantage of weaknesses in the AVS armor:
The Problems It Was Designed to Combat Are Different Now.
If a single credit card has been lost or stolen, AVS can catch the perpetrator. Fraud is big business now, though. Credit card information is often stolen in huge data breaches, then sold in bundles on illicit websites.
If a fraudster has access to a stolen card number, they will probably have the customer’s name and address, also. This renders address verification essentially useless. AVS can tell if the purchaser knows the card’s correct billing address, but it can’t guarantee that the purchaser is the actual cardholder.
Fraudsters Have Gotten Smarter.
Not only can crooks thwart AVS through newer techniques such as account takeover fraud, they also understand the system’s limitations. This includes its sole focus on numeric data. If the street number and the zip code match, for example, AVS will consider it good, even if the name and street are completely different.
Fraudsters can also afford to think long-term. Some will create phony personas, nurturing a credit rating for years, then maxing out every credit card and disappearing. AVS could never catch these fraudsters; for all intents and purposes, the credit cards they are using are their own.
The Market Is Global…but AVS Isn’t.
Currently, AVS operates in the US, the UK, and Canada. However, eCommerce has made ordering from anywhere simple and convenient.
As we mentioned above, one of the codes an AVS search could return is “International.” In other words, the purchaser is in a country not supported by AVS. If any percentage of your business is coming from other countries, AVS alone won’t be much help.
The Problem of False Declines.
Have you ever forgotten to update your mailing address after a move? Maybe hipped something to your business instead of your home? There many legitimate reasons why a given address might not match whatever address the bank has on file.
Being too lax in reviewing questionable transactions can certainly leave you vulnerable to fraud. But at the same time, taking too aggressive a stance against “risky” transactions is bound to yield more false positives.
You may think this is a fair trade-off. However, statistics show that losses from false declines maybe nearly 70 times higher than the amount lost to fraud in 2021. If you’re not careful, you could stand to lose $7,000 for every $100 worth of fraud you prevent.
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Free DownloadIs It Time to Retire AVS?
Few would argue that the address verification system is less relevant in today’s world. Flawed as it is, however, AVS is still useful.
Clever fraudsters and inaccurate data may skew the system. But, at the same time, a full AVS match is a very reliable indicator of a good transaction.
Let’s put this another way: AVS may not always catch bad orders, but it is still pretty good at identifying ones you can trust. Plus, if a chargeback is filed on an order, having a positive AVS address match (and record of a shipment to the address on file with the issuer) gives you a much stronger defense to challenge the customer’s claim.
AVS as Part of Effective Chargeback Management
Winning a chargeback reversal is good; preventing the chargeback from being filed in the first place is better. Address Verification Service can help in both areas, but you shouldn’t put all your faith in one particular tool.
Fraud and chargeback prevention needs a multi-tiered approach. The use of the credit card Address Verification Service should only be one element of your overall strategy. The problem is that merchants often have too much on their plates. You might be tempted to rely heavily on automated processes like AVS.
A better idea is to implement a customized chargeback prevention plan that uses AVS data in conjunction with other tactics. The Chargebacks911® end-to-end service platform, for instance, prevents more chargebacks, wins more reversals, and maximizes your ROI. For more information, contact us today.
FAQs
What is Address Verification Service?
AVS is a fraud-prevention tool that verifies the billing address given by the customer at checkout matches the one associated with the cardholder’s credit card account.
How does address verification work?
A purchaser begins the process by entering an address during the checkout process. That address is then compared to the address the issuing bank has on file. As the merchant, you receive an AVS code that indicates which of the numeric values match (if any).
Why is AVS important?
AVS allows you to intercept some fraud attempts. In some cases, it can also be helpful to have a positive AVS response in the event that the cardholder later claims that the transaction was fraudulent and files a chargeback.
Does AVS affect interchange?
Yes. An AVS downgrade can result in higher interchange fees imposed on you by banks. In effect, not collecting AVS data on card-not-present purchases will lead to higher fees.
Can AVS prevent all chargebacks and fraud?
AVS can help you identify certain types of criminal fraud in time to stop the transaction. No one tool can combat all chargebacks and fraud, but a multi-tiered approach can help lower risk.