What is Address Verification Service (AVS)?

Address verification service (AVS) is an identity verification tool used by card-not-present merchants to reduce the risk of unauthorized transactions and the resulting chargebacks. AVS compares the billing address provided by the cardholder during checkout to the billing address on file with the issuing bank.

AVS can be a helpful chargeback prevention tool but only if you understand the technology’s abilities and limitations.

In this post, we’ll cover the following points:

• What is an AVS Check?
• How Does the AVS Authentication Process Work?
• What are AVS Response Codes?
• How Would I Use Address Verification Service?
• What are the Pros and Cons of AVS?

What is an AVS Check?

AVS checks are a technique used to verify a shopper’s identity. The goal is to make sure the shopper is the actual cardholder and not a criminal making an unauthorized purchase.

During checkout, the AVS technology will prompt the shopper to provide the address associated with the credit or debit card account — the street address where the bank sends monthly bills or statements.

AVS will analyze the numeric portion of the billing address — the building number and the postal code. If the information provided matches what is on file with the bank, it’s assumed the shopper is the actual cardholder. If it doesn’t match, the assumption is that an unauthorized person is attempting to use the card fraudulently.

How Does the AVS Authentication Process Work?

The address verification system is essentially a conversation between you and the cardholder’s bank. It is a technical process that happens in a matter of seconds — you ask the bank to check the information provided by the shopper and the bank lets you know if it is authentic or not.

Here’s a breakdown of how AVS works for debit and credit card transactions:

1. The customer enters billing information on your payment page (or over the phone) during checkout, and it is passed to your payment gateway.
2. The payment gateway sends the address information — alongside the authorization request — to the card brand (Visa, Mastercard, Discover, or American Express)
3. The card brand forwards the request onto the card issuer (or issuing bank) which verifies the information provided against the billing address on file.
4. The issuing bank returns an AVS response code to the payment gateway.
5. Depending on the AVS code, the transaction should be approved or declined.

What are AVS Response Codes?

An AVS response code is the short messages that the issuer sends you after reviewing the transaction details. These codes explain whether or not the address data provided matches what the bank has on file for the debit or credit card account. These outcomes can help you decide how to proceed.

AVS response codes differ by card brand, both in syntax and meaning.

How Would I Use Address Verification Service?

AVS is an optional — but highly recommended — fraud management tool. If you choose to use AVS, you’ll need to do the following things:

1. Ask your processor (or check your processor’s documentation) to enable AVS. Most online payment gateways will include this option in administrative settings.
2. Set acceptance rules. How much risk is too much? Will you only process transactions with a full match and decline everything else? Or will you allow some partial address matching too? Most processors will automatically approve or decline transactions based on predefined rules.
3. Save the AVS response codes in case of chargeback response scenarios. AVS response codes are highly compelling evidence — especially for fraud-related disputes.
4. Communicate with your customers in the case of a declined transaction. An AVS “No Match” response will most likely put an authorization hold on customers’ funds. That means that while the transaction was declined, the funds will still be frozen for several days.

What are the Pros and Cons of AVS?

Should AVS be a part of your business’s fraud prevention strategy? Do the benefits outweigh the drawbacks? Let’s take a look at both the pros and cons of AVS.

Drawbacks of Using AVS

While AVS is a robust fraud prevention system, it’s not without its weaknesses. The tactics of fraudsters evolve almost as quickly as ecommerce technology itself.

• AVS is less effective than it used to be. Fraud tactics that were common when AVS was invented are different from practices used today. For example when AVS was implemented, the biggest threat was from criminals using lost or stolen cards. If a scam artist found a card on the sidewalk and attempted to use it, AVS had a good chance of detecting and stopping the fraud. But these days, card information is commonly obtained through massive data breaches. These hacks not only disclose the card’s account information but also the billing information. If fraudsters have both pieces of information, AVS is ineffective.
• AVS is currently only used by US, UK, and Canadian-based issuing banks. While AVS can return an “international” response code, that alone won’t help prevent fraudulent transactions.
• AVS was designed to prevent malicious fraud, not friendly fraud or basic customer disputes. The technology cannot account for unscrupulous consumer behavior or misunderstandings. Attempting to use AVS in a way other than intended might cause negative return on investment (ROI).
• AVS can produce false declines if customers mistype a portion of their address or forget to change their billing information after moving. While some consider this a necessary price to mitigate fraud, studies show that false declines can significantly impact revenue — even rivaling the effects of fraud itself.
• Some customers might consider AVS unnecessary friction during checkout. Entering both shipping and billing information can seem redundant. One way to minimize the friction is to have a checkbox for “billing and shipping address are the same”.

Benefits of Using AVS

What are the benefits of using AVS? Is this tool a good fit for your business?

• AVS can reduce malicious fraud and the resulting chargebacks. Despite the technology’s shortcomings, AVS can help block unauthorized transactions. Even if the success rate isn’t as high as it once was, something is better than nothing!
• You’ll probably pay less in fees if you use AVS. Transactions authenticated with AVS are typically classified as “qualified” transactions on a tiered-rate fee structure with your processor. If you don’t use AVS, transactions are downgraded to “mid-qualified” or “non-qualified”. Downgraded transactions have higher processing fees than qualified transactions. And, downgraded transactions also have a higher rate for the interchange fee imposed by the card brands.
• AVS can help you recover more revenue. AVS response codes serve as compelling evidence when you fight invalid chargebacks.

This last point is critical.

To win a chargeback reversal, you must have sufficient evidence to persuade the cardholder’s bank to reevaluate the case. There are lots of different documents and information that you can use as evidence. But when you are fighting fraud-related chargebacks, response codes from identity verification systems are the most compelling.

The 2018 Visa Claims Resolution (VCR) initiative changed compelling evidence requirements for reason code 10.4 (Other Fraud – Card Absent Environment). Now, a chargeback response needs to contain evidence that proves the merchant verified the cardholder’s identity. Merchants can prove this with positive matches from address verification service, card verification value, and 3D Secure 2.0.

When VCR changes first went into effect, win rates for fraud-coded disputes dropped from 75% to 41% because less than half of merchants were using these identity verification tools. However, when merchants added tools like AVS to the transaction lifecycle, win rates returned to the average level.

Incorporating AVS into Your Chargeback Management Strategy

Address verification service plays an important role in both preventing and fighting chargebacks.

However, there isn’t a single tool or strategy that will provide complete protection. Chargeback management is more about the sum total of all the systems, processes, and checks in place.

Protecting against chargebacks and revenue loss requires a multi-faceted approach. If you’d like to learn more about how Kount incorporates AVS into a comprehensive fraud and chargeback management strategy, Sign up for a demo of Kount's technology.