November 16, 2019 12:00 PM PT

What is AVS?

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Address Verification System (AVS) can reduce fraud and chargebacks for your online orders. Learn how AVS works and how it can help your business.

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How AVS Works

Address Verification System (AVS) verifies that the address provided on the transaction matches the address on file with the issuing bank for Visa or Mastercard. It also verifies the address on file with the card provider in the case of Discover and American Express.

Here's how:

  1. Customers enter their address information when making a purchase.

  2. Address data is transmitted to the issuing bank or credit card provider.

  3. The issuing bank or credit card brand compares the address provided with the address on file.

  4. An AVS response code is sent back with the authorization decision through the payment gateway (more on these below).

Why Should You Care About AVS?
While it may seem like just another expense, AVS can:
  • Reduce fraudulent use of credit cards
  • Reduce the number of chargebacks your establishment experiences

How Much Does AVS Cost?

The AVS fee is $0.01 per online (card-not-present) transaction and $0.005 per in-person transaction.

Your card processor pays the fee then typically passes it along to you. How you pay the fee depends on the type of pricing you have.

Read on to learn about each type of pricing structure.

Mastercard, which started AVS, offers a card-present and card-not-present AVS process. But card-present AVS is less common since you have other ways of verifying an address when the customer is in front of you.

Flat-Rate Pricing
If you pay a flat fee for each credit card transaction, such as 2.75% per transaction, your AVS fee will likely be included in the fee. It's difficult to find the fee breakdown with flat-rate pricing. Don't assume AVS is included—ask your processor to be sure.

Interchange-Plus Pricing
Some processors charge a separate AVS fee on interchange-plus pricing, while others don't. Regardless, you will pay a lower interchange fee for the use of AVS because it lowers the risk of fraud. The savings can offset the AVS fee.

Tiered Pricing
You benefit from the use of AVS when you have tiered pricing. Processors charge either a qualified or a non-qualified rate to process your transactions. Most transactions without AVS automatically become non-qualified, which means higher processing rates.

What Is an AVS Rejection?
An AVS rejection occurs when you reject a transaction due to the AVS code. For an eCommerce store, you set your gateway up to accept or reject specific codes. You can change the settings as often as you like. If you operate a brick-and-mortar store and use AVS (which is rare), you would manually reject the transaction.

What Are the Common AVS Codes?

Each card brand (Visa, Mastercard, Discover, and AMEX) has its own AVS codes. Some issuing banks have their own codes.

Here are the most common AVS codes:

  • No address information provided
  • Addresses are a match, but the zip codes don't match
  • The 5-digit code doesn't match
  • The 9-digit zip code doesn't match
  • Zip code not verified
  • No address provided

When you process online transactions, you customize how the payment gateway handles the codes. The gateway will accept or reject transactions according to your configuration.

What Does AVS Compare?
The AVS uses the numeric part of the street address and the zip code when comparing addresses. After comparing the two numbers, the system sends back codes. You use the codes to determine the reason the address verification either succeeded or failed. Read on to learn about the codes AVS will send.

How Do You Fix an AVS Mismatch?

It's up to you to decide what you are comfortable doing when there's a mismatch. You can:

  • Approve the transaction despite the mismatch
  • Run the transaction through again
  • Verify the customer's information with them to determine why a mismatch exists

Make your AVS code rules carefully.
Making them too strict can make it difficult for legitimate customers to get approved. But making them too loose could let fraudulent transactions through.

For example, if a customer recently moved and didn't update his or her address with the credit card company yet, declining the transaction could cost you a customer.

Use caution when you choose. Rerunning a transaction may cost you more in processing fees. But approving a mismatch could put you at risk of fraud.

If you decide to verify the information with the customer, it uses up your time and may still leave you with a decision to make.

Bottom Line

AVS helps lower your risk of fraudulent activity, but it doesn't eliminate it. Nothing is 100% foolproof when it comes to preventing fraud.

Using the Address Verification System may help decrease the number of fraudulent transactions you have. It may even save you money on your processing fees, so it's worth looking into.

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