$38 billion. This is how much merchants across the globe have lost in revenue throughout 2023 due to online payment fraud, according to Juniper Research.
As the realm of online payments develops and expands, so is the necessity to ensure the security of transactions becoming paramount. If you accept card not present (CNP) transactions, such as online or mail order/telephone order (MOTO) payments, you know that confirming the identity of the individual purchasing from you can be a challenging task. The Address Verification Service (AVS) has emerged as a powerful security tool to help tackle this issue.
In this article, we will dive into the concept of AVS, exploring what it is, how it works, its role in enhancing payment security, and the benefits it offers to both businesses and customers.
What is AVS
The Address Verification System (AVS) is a fraud management solution that is integrated into modern payment systems. AVS confirms that the billing address provided by the customer during a transaction at the merchant’s online checkout matches the address of their bank account their card issuer has on file. It should be noted that AVS is available in North America (the US and Canada) as well as in the UK.
Essentially, AVS allows merchants to confirm if the consumer placing the order in their eCommerce store is the same individual as the cardholder, which helps detect suspicious transaction behaviour to deter fraud while also preventing chargebacks. (If you want to learn more about chargebacks, take a look at our video and article). In case of an address mismatch, the merchant is alerted, and further risk assessments are performed to determine whether to proceed with the transaction (more on this below).
As a result, merchants can protect their customers while safeguarding their business from financial and reputational damage.
How does AVS work?
In card payments, AVS checks play a pivotal role in the authorisation process and typically work as described below:
- The shopper initiates an online payment at online checkout by inputting their payment details, including their billing address, to submit the order.
- An AVS check is requested by the merchant’s acquirer asking for user verification from the issuer. Precisely, the AVS system captures the billing address data and relays it to the acquirer who then contacts the issuer to authorise the payment.
- The issuer carries out the authorisation stage, which involves verifying the cardholder's billing address while confirming that the account is valid and has adequate funds to cover the transaction amount. This also includes checking if the card verification value (CVV) code aligns with that entered during the payment. When it comes to the billing address, the issuer compares it against the registered address that the cardholder has on file with their issuer to ensure it’s a match. It's important to mention that only numeric values (street number, box number, zip code, etc.) are compared during the AVS check.
- An AVS response code (more of this below) is generated by the issuer based on one of the basic conditions which indicate the level of address match – be it a full match, no match, partial match, zip code match, or data unavailable. The entire process is smooth and normally takes a few seconds to complete. The AVS response codes can be found in the payment gateway transaction response.
- The results are then sent back to the merchant. Based on the response code, it will be decided whether to authorise or decline the transaction, or further investigate the order. If the billing information input by the cardholder partially matches or doesn’t match it at all, the transaction will undergo further risk evaluation. Customers receiving an AVS decline might view a reserved and pending sum in their bank account, which will be cleared without charging them for any payments that were rejected.
What are AVS response codes?
Once the issuer has found the address on record for the credit/debit card, they’ll return a single-letter code, referred to as an AVS response code, to the merchant via their acquirer. Such response codes provide insight into the outcome of the AVS check, signalling whether the billing address given by the customer is the same as the information the issuer has.
These codes, which can vary from one card scheme to another, inform the merchant about the next steps they should take with the transaction. There are various AVS response codes, and below are the most common codes along with a brief explanation:
- “A” (Partial Match) – This code can mean that the street address matches but the postal or ZIP code doesn’t.
- “M” (Match) – The billing address that the customer provides matches the one the issuer keeps on file.
- “N” (No Match) – Neither the street address nor the postal or ZIP code is aligned with what the issuer keeps on record.
- “U” – (Unavailable) – Either the issuer doesn’t have any information stored on file or doesn’t support AVS. Merchants are advised to use their discretion and other order review practices to determine whether to accept or decline the payment transaction.
- “X” (Exact match) – The billing address submitted by the consumer is an exact match with the information on file with issuer.
- “Z” (Exact match) – The postal or ZIP code of the customer is an exact match with the information the issuer keeps on record.
It should be noted that AVS response codes can also reveal the risk attached to a customer transaction. For instance, an “N” or “U” response code may designate a higher risk level that needs to be investigated.
Benefits of AVS checks
AVS includes a number of benefits that include, yet are not limited with:
Accuracy and validity
AVS helps verify that the address provided by customers is precise and properly formatted. Confirming addresses in real time reduces the likelihood of errors, including misspellings, wrong ZIP codes, or incomplete information. Ultimately, this real time verification helps prevent shipping delays, returned packages, chargebacks, and overall customer dissatisfaction.
Lessening fraud risks
In case of an address mismatch during an AVS check, the need for further inspection is raised. By detecting and tackling potential fraud, AVS enables merchants to safeguard their business and customers from unauthorised transactions and identity theft.
Reduced chargebacks
By verifying customer addresses via AVS, merchants can increase their chances of minimising the risk of transaction disputes and chargebacks, thereby protecting their business from financial losses.
Enhanced delivery experience
The prevalence for eCommerce signifies the necessity for speedy and effective delivery to establish and sustain an ever-growing eCommerce brand. This is because the verification of the card ownership when it’s used online by a customer, for merchants involved in shipping and logistics, can lead to prompt and accurate delivery of orders, and thereby a positive delivery experience.
Should I use AVS for my business?
AVS is one of the leading security standards that businesses can use to minimise the risk of credit/debit card fraud and, ultimately, the effects it can have on their revenue.
However, a potential challenge that may arise with AVS checks is when there is a discrepancy between the customer's provided billing address and the address the issuer has on record. This may not necessarily be associated with fraud, but it can be due to a recent change in the cardholder's address where the files haven’t been updated yet, or simply because of errors during the initial address registration. Although such issues are relatively uncommon, they can sometimes result in legitimate transactions getting rejected, causing frustration and inconvenience for customers.
For this reason, eCommerce merchants should deploy AVS checks to combat fraud and chargebacks in conjunction with fraud prevention tools and a wider risk and chargebacks management strategy. Teaming up with a payment service provider with enhanced fraud prevention capabilities can help achieve this efficiently.
How emerchantpay can help
Integrating an AVS fraud prevention solution into your online payment system does not simply help you enhance your business's security. It also ensures that customer trust is reinforced while your organisation’s financial well-being is maintained.
Thanks to emerchantpay’s advanced fraud prevention tools and effective real-time monitoring that can stop fraudsters in their tracks, our customers can rest assured their payments are processed with the highest level of security. Our historical transaction records of more than a decade, including our in-depth expert insights, has enabled us to craft a rule-based risk engine. This helps us strengthen the tracking of our merchant’s incoming traffic and pinpoint any fraudulent transaction activity.
Want to know more about how emerchantpay can protect your business against fraud? Speak to one of our payment specialists today.