In an era of online business, one of the businesses’ and customers’ most prominent fears is fraud. If you’re a business owner operating in a high-risk industry with a high-risk merchant account, discover what you should know about an important fraud prevention measure: AVS, or the Address Verification System. You may also read, high-risk merchant account providers.
The Basics of the Address Verification System
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If you have made an online purchase or have bought merchandise at a business that works in a high-risk industry, such as an electronics store or a gas station, you might have noticed having to enter your address or ZIP code to complete the purchase. The AVS compares your provided information with the information your debit or credit card provider has on file. By making sure the information matches, the AVS can flag questionable transactions.
For customers, this address information check adds a layer of protection in cases of card theft. For vendors, the reduction in the number of chargebacks is a significant benefit. Chargebacks happen for many reasons, but fraud ranks high on the list.
The exact cost of a chargeback can be hard to calculate. While failed chargebacks will charge you a fee — typically $10–15 — and some extra hassle, a successful chargeback keeps you on the hook for the entire transaction amount. Merchants, in turn, should take steps to stop fraud before it happens.
How an AVS Works
Mechanically, an AVS has three essential parts. The first is the input, in which a customer enters a street address or ZIP code during checkout. Second, the AVS sends this information to the card provider to verify a data match. Finally, the card provider sends a code back to the payment processor, indicating the level of the address match.
As you may have noticed, merchants and the AVS have no control over the results of this verification check. If upset customers call because their transaction was declined but they provided correct information, you can refer them to their card provider, which may have inaccurate or outdated address information on file.
Note: Only the numbers in a street address are checked against the information stored by the card provider. Other typos, or differences such as Northwest versus NW or Street versus St., have no effect on verification.
The Details of AVS Codes
Although Visa has set the standard for codes, American Express uses its unique codes, and a different set of codes can be found outside of the United States. The codes of primary concern are as follow:
- A: The street address matches, but the ZIP code does not match.
- E: The AVS information is invalid.
- N: Neither the street nor the ZIP code matches.
- R: The AVS system is unavailable.
- S: The bank does not support AVS.
- U: The address information is unavailable.
- W/Z: The street address is a mismatch, but the ZIP code matches, either to nine digits (W) or five (Z).
- X/Y: The street address and ZIP code match, either to nine digits (X) or five (Y).
While vendors should use their discretion, the standard procedure is to decline transactions that return with a code E, N, R, S, or U and to allow operations that return with W, X, Y, or Z. Code A is a borderline case, with some merchants choosing to allow and others to decline transactions that return this code. A balancing act is a primary consideration, as more stringent requirements will decrease fraud but also interfere with some legitimate purchases.
Some merchants also prefer to take more precautions by freezing, but not declining, transactions that return with partial matches. Following the freeze, merchants can review the transaction for other indicators of fraud, such as a variable order volume or orders that consist entirely of big-ticket items. While this procedure may not be necessary for all merchants, those who rely on a high-risk merchant account based on their business’s industry may want to take similar steps.
In any case, by understanding AVS functionality and the meaning of these codes, you can prevent fraud. The result is a win–win situation; you can protect your customers from having their cards misused, and you can also protect your business from the costs and adverse market effects of chargebacks.
