What is the Address Verification System (AVS) and how does it affect my merchant account?

No matter what industry you’re in – from high-risk e-cigs, an online dating services, to more traditional footwear or clothing – and no matter what shopping cart you use, whether it be Shopify, BigCommerce, or WooCommerce– the Address Verification System (AVS) exists to prevent some fraud and can lower your costs of processing credit or debit cards.

The Address Verification System helps reduce fraud for online or card not present sales (sales that are not conducted in person with a signature and a chip or magnetic swipe read) by checking the billing address given by the cardholder against the address the issuing bank (your customer’s bank, the one that “issues” them the credit card) has on file for that particular person. The system checks the numerals in the address: for example, the 432 in 432 Main Street and the zip code — for example, 28730 or even the 9 digit extended zip code and returns the result to your gateway where it is accepted or declined based on your gateway settings.

If there is a match — great! That typically means the card is more likely to be used either by the cardholder, or by someone a family member, for example, that the cardholder has given permission to use the card.  It is by no means a sure thing, but it at least means the person trying to use that card knows something about the actual cardholder.

If the address does not match, it doesn’t necessarily mean the card has been stolen or is being used inappropriately. Sometimes the system will return a false positive or partial decline on a legitimate transaction. For example, a legitimate customer may simply forget that their credit card bill goes to their PO box, not their home, or even have a small typo in their address at their bank.

Bear in mind that the risk for fraud is generally considered higher without an AVS match, and as a result, typically the card is processed with a surcharge or at a higher interchange rate — which means as a merchant, you will generally pay more for that specific transaction. The “rate”, if effected is almost always controlled by the 5 digit zip code not the longer 9 digit zip or the street address. This means if you have correct zip code info but wrong street address info you may have a partial AVS mismatch and risk more fraud, but your processor’s rate will usually not be affected.

Because the risk of fraud is greater with an AVS mismatch your risk of a client disputing a sale and winning via a chargeback is also greater. If you have a positive address match and you actually ship the product to the address on file with the cardholders bank you can often reduce the chances of losing a dispute, or chargeback. One helpful hint that many b2b or big-ticket merchants benefit from is asking clients to add a second “address on file” with their bank. For example, you sell industrial tools online and a client wants to order $4000 worth of tools. They put down their shop address where they want the tools to be shipped but their billing address is a PO box. If you refuse to ship the tools to an address that does not match for fear of fraud (basically if you insist that the billing and shipping address be the same) you may lose that sale. In a situation like this where you have a large sale and a serious client, you can ask them to call their credit card company and add the second address as an additional billing address. Now you can re-run the sale with the “shop” address, get an AVS match and ship it to that address.

Most gateways such as NMI, eProcessing Network, or Authorize.Net allow you, as the merchant to choose a set of “if-then” settings to determine if you would like to decline a card based on a full or partial AVS mismatch. For example, “approve if either the street or the zip code matches” or “decline unless both the street and the zip code match”. You may also (with the blessing of your processor) disable certain settings to allow your clients to use prepaid cards. Think about it, prepaid cards or card-branded gift cards purchased at a gas station are not going to have your customer’s address on file; these will all decline unless the settings are changed. In Authorize.Net, for example, you can choose not to decline cards when the address for the cardholder is unavailable by deselecting option U under settings, address verification service.

Many processors, especially when working with a high-risk merchant category insist upon AVS, so please make sure you discuss any changes to your AVS settings with your processor first or you could risk held funds or worse.

As always, we are happy to share our knowledge and have a friendly no obligation phone call with you if you have any questions on AVS gateways, a processor recommendation or any other eCommerce related topic.