The Address Verification System (AVS) is a tool given to merchants by credit card issuing banks and credit card processors to identify suspicious transactions and prevent fraud. It is one of the most commonly used tools for preventing credit card fraud. AVS makes it possible for a merchant to find out whether they should accept a transaction or reject it. The Address Verification System checks the cardholder’s billing address recorded by the issuing bank with the billing address given by the person using the card.
The Address Verification System is used in finance and banking to identify and prevent credit card fraud. Read on to find out more about it.
An overview
For every credit card transaction, merchants normally have an authentication process. As part of the authentication process, the Address Verification System checks the cardholder’s billing address recorded by the issuing bank with the billing address given by the person using the card for the transaction in question.
The Address Verification System helps the merchant understand whether or not a transaction is fraudulent or not. When AVS tries to match the addresses, the credit card processor responds with a code showing how much of the card user’s address matches the address on record. This makes it easier to authenticate the ownership of the card in a transaction where the card user is not physically present.
That said, AVS is not completely foolproof. The address given by a genuine card user may not necessarily match the address on record with the card issuer. One of the main reasons for this is that the cardholder may have changed to a new address recently and has not had the time to update the card issuer about the change yet. If this is the case, the merchant will end up rejecting a perfectly good transaction.
How does the Address Verification System work?
The Address Verification System is used by all major credit card companies to prevent fraud in situations where the card is not physically present. This refers to online transactions where credit cards are used to make payments.
If used effectively, AVS can help prevent digital fraud. It does this by comparing the address of the credit card holder that the card issuer has on file with the address provided by the consumer making the payment via the credit card. If the two addresses match, the transaction is accepted. If not, it is rejected.
When the consumer using the card to make the payment enters the address, the card-issuing company sends a response code telling the merchant how much both the addresses match. This code is in single letters. Based on this, the merchant can take a call on whether to approve the transaction, mark it as an exception, or deny it.
The Address Verification System does not work alone on its own. It usually is a part of a much larger security system that has multiple layers to it. This multi-layered security system helps identify and approve genuine transactions while rejecting fraudulent ones, thus preventing digital fraud.
However, AVS is not a fool-proof system as it does not guarantee that all digital fraud will be eliminated. Sometimes, the system can throw up partial declines and false declines. If a transaction is partially declined, the user will be asked for additional authentication before it is approved.
Example
Imagine you’re shopping on Amazon.com. Here’s what happens when you enter your address while checking out your cart:
- The payment gateway operated by Amazon sends the address you enter to your credit card company. This could be MasterCard, Visa, American Express or Discover.
- Your credit card company, in turn, sends these details to the issuing bank which then compares the address you’ve given with the address it has on record.
- The issuer crosschecks the addresses and sends the authorization status and the AVS response code to Amazon’s payment gateway.
