AVS is used by major credit card companies Visa, American Express, MasterCard, and Discover. If you’re a small business owner getting ready to enter the online arena, it helps to understand how this process works and how it helps you as a merchant. As a consumer, it’s important to know how your information is being used and verified.
Definition and Example of an Address Verification Service (AVS)
AVS is a fraud-prevention system designed to limit credit card fraud and potential chargebacks. If you use a debit or credit card in an online transaction, the credit card issuer must verify that your billing address you use for the transaction matches the address you have on file with your bank.
Acronym: AVS
How an Address Verification Service Works
If you use a debit or credit card in an online transaction, the credit card issuer must verify that your billing address matches the address you have on file with your bank. Once your card issuer compares the transaction’s billing address with your address on file with the bank, the bank sends a one-digit AVS code to the merchant. Merchants then use this code to determine whether or not to accept or reject the credit card transaction. Imagine that you placed an online order using your American Express card. Before approving the transaction, the merchant submits the billing information you provided to American Express. From there, American Express sends this information to your bank, where the billing address is compared to the address on file. American Express checks to ensure that your billing address and five-digit zip code match. American Express sends a code to the merchant based on the information received. This code helps the merchant determine whether to approve or deny the transaction. Some codes are the same across credit card networks, and some are different. Here are the common codes merchants might expect to receive, and what each one means:
Y: This code means the addresses and zip codes match. For Discover cards, this code means only the address matches.A: This code means the addresses match, but the zip codes don’t. For Discover cards, this code means the address and zip code match.Z: This code means the zip codes match, but the addresses don’t.N: This code means that neither the addresses nor the zip codes match.
Pros and Cons of an Address Verification System
Pros Explained
Helps prevent card-not-present fraud: Scammers may be able to gain access to a consumer’s credit card number, but they don’t usually have access to their address. For that reason, AVS can help cut down on card-not-present fraud.Verifies info in real time: E-commerce transactions happen quickly, and AVS verifies the cardholder’s information in real time.Protects merchants and consumers: AVS protects cardholders from credit card fraud and protects merchants from costly chargebacks.
Cons Explained
Can’t completely prevent fraud: AVS is an effective tool, but it can never entirely prevent card-not-present fraud.
