What is Address Verification Service (AVS)?

January 20, 2017/ Jessica Velasco /

How AVS Helps Merchants Prevent Fraud and Chargebacks

What if there were a simple, automated technology that could help merchants fight fraud, retain more revenue, and encourage long-term growth and positive customer interactions?

What if this basic tool was already available and at every merchant’s disposal?

What is Address Verification Service?

Address Verification Service, or AVS, is a tool used to identify and intercept fraudulent activity using a buyer’s address as a method of transaction verification.

When a buyer makes a purchase online, AVS automatically compares the provided billing address against the billing address on file with the issuing bank. The issuer checks for a match and sends an AVS code back to the merchant.

The code provided indicates how strong the match—and the likelihood of an unauthorized transaction. Addresses might match fully, meaning both the provided street number and zip code align with the issuer’s information. Partial matches indicate either the street address or zip code match, but not both. A complete mismatch often indicates the shopper is not the cardholder, as the cardholder would be aware of the true billing information.

Merchant processors and payment gateways work in conjunction with AVS. Vendors can automatically approve or reject individual transactions based on predetermined rules regarding AVS code responses. Or, merchants can manually review suspicious transactions and determine a case-by-case outcome. This reduces the likelihood of unnecessarily declining valid orders.

The Shortcomings of AVS Technology

Address Verification Service is viable risk mitigation too, however, it is not a foolproof answer to fraud.

Setting overly-aggressive standards and relying on automation will likely result in more valid transactions being flagged as fraud. This will not only prevent the present purchase, but may alienate rejected customers and prevent them from returning in the future.

The best strategy is to manually review each suspicious transaction. The problem is that manual reviews can be an expensive and time-consuming process. According to the most recent data from CyberSource:

• 83% of North American merchants conduct manual reviews.
• 29% of orders are flagged for manual review.
• 46% of merchants said reviews accounted for the largest portion of their fraud management budget.
• 82% of orders flagged for manual review are ultimately accepted.

The high cost of manual reviews puts merchants in a difficult position. It would be ill-advised to function the eCommerce environment without basic fraud defenses like AVS, but the potential for false positives demands human insight to make AVS feasible.

Exceptions to the Rules of AVS

To get the greatest benefit out of the manual review process, merchants will need to exercise their own judgement and grant special consideration for the following stipulations:

• Different global markets bear radically different rates of fraudulent activity. While fraud attacks typically represent 1-3% of online transactions in many global markets, in some countries, more than one in three transactions are identified as fraud.
• Pre-paid cards typically do not feature a corresponding address or other customer data. This may cause valid transactions to be mistakenly identified as fraudulent by AVS or other fraud detection technologies.
• Different parties will not always agree on the validity of a transaction. For example, a transaction may be approved by the cardholder’s issuing bank, but depending on the merchant’s preferences, may be declined by the processor or gateway. In these situations, it is important for the merchant to communicate with the cardholder, as the cardholder will assume the approved transaction has been finalized.
• The way in which a merchant deploys AVS may impact processing fees. If the processor believes a merchant is too lax with AVS standards, a higher discount rate may be required to insulate the processor against increased fraud.

AVS: Part of a Comprehensive Strategy

As of early 2016, merchants in the US saw approximately 27 fraud attacks for every 1,000 transactions—an average of nearly 3% total. That’s a dramatic rise over the same time the previous year, underscoring the growing role AVS and other anti-fraud technologies will play going forward.

Online fraud is a complex matter with divergent points of origin. New potential fraud sources develop constantly and demand a comprehensive, multi-layer fraud and chargeback management system to contend with each individual threat. This can include technologies such as AVS and fraud filters, as well as chargeback mitigation and representment services.

AVS will help merchants prevent chargeback losses resulting from fraudulent activity, but there is no single cure-all answer for eCommerce fraud. Instead, fighting back against fraud losses and retaining revenue demands an integrated, cooperative approach.

Last Update: August 16, 2022