Boy, are chargebacks a pain. It makes sense that merchants would use any tool they can to prevent payment reversals, especially when it comes to true fraud. Beyond the financial loss is the hit to brand reputation and customer loyalty when your clients find out that their payment details were illegally used at your store. Luckily for merchants in the U.S., Canada and the U.K., there are Address Verification Services (AVS). Offered by the credit card networks Visa, MasterCard, American Express and Discover Card and issuers, this tool helps fight the phenomenon of criminals paying for goods with stolen credit card information
AVS checks to see if the submitted order’s billing address matches the cardholder’s address on file with the issuer. The AVS check is usually done as part of the merchant’s request for authorization on the card. Only the first four to five digits of the address and the postal code are verified — nothing else is checked!
For example: If the cardholder’s name and address were:
Mr. Bob SmithÂ
9999 Main St.Â
Salt Lake City, UT 84044
What would be sent to the issuing bank to be checked would be “9999” and “84044.” The text in the address is irrelevant. Â
Merchants will get one of six codes back from their payment processor indicating what matched: full match, partial match-address, partial match-zip/postal code, no match, international and unavailable. The next step is the merchant sets a logic in their payment gateway for accepting or denying orders based on the AVS response codes.Â
Merchants can set their order fulfillment system to accept or reject orders for whichever AVS response. Regardless of the AVS return value, merchants can still get a valid authorization on a credit card. If, for example, a merchant’s system is set to block “no match” transactions and receives a “no match” then it would be categorized as a “soft decline” by the issuer.
A soft decline means that the authorization of the transaction by the issuer has been successfully completed, placing a hold on funds in the customer's account, but fund settlement has not yet occurred. It is then up to the merchant to reject the sale by requesting an authorization reversal to remove the hold on funds in the customer's account.
If AVS is enabled, merchants pay a small AVS assessment fee per transaction to their payment processor. The processor passes along the fee set by the credit card network usually with a markup – end costs between $0.05-$0.25 a sale are not unusual. As of 2020, the wholesale price set by MasterCard for AVS on card-not-present transactions was $.01 per sale.
AVS is best used as a piece of evidence for chargeback mitigation not as an all encompassing tool for preventing chargebacks. A full AVS match is great for friendly fraud chargeback mitigation since the odds are low that the cardholder didn’t receive the goods if the shipping address matched the address on file with their issuer.Â
For true fraud prevention, a full AVS match reduces the risk of a chargeback resulting from a transaction but it doesn’t guarantee there won’t be any problems. Enterprising criminals sell cardholder address information online to fraudsters to enable them to outsmart AVS.Â
Similarly, a no match response indicates a higher risk for true fraud but it doesn’t guarantee it. There are any number of legitimate reasons that an order will come in a full AVS mismatch.
Besides for preventing chargebacks, it pays to use AVS because it’s part of the required qualifications for lower cost interchange rates. In effect, issuers are rewarding the merchant for adding a degree of customer authentication to the transaction.
Fraud prevention experts recommend a layered approach to fraud prevention that doesn’t rely on entirely one tool. With AVS there is a danger that the tool will miss a significant part of the fraud, as well as block too many good orders.
In the case of AVS, fraud prevention company Riskified’s analysis of its own data showed that 80% of AVS-supported orders that were declined by Riskified had a full or partial AVS match. The fraudsters can achieve this by using stolen cardholder data to set up a shipment drop point that has the same numerical code as the legitimate cardholder’s address. Remember the AVS cannot tell if the street names are different. That is why the issuer may accept an AVS match as supporting evidence against a fraud chargeback claim but still rule against the merchant.
Conversely, blocking all orders without a full match would lead to a lot of frustrated legitimate customers, what’s known as the customer insult rate. Some reasons for AVS mismatches on legitimate orders include old addresses on file at the issuer after a move, gift purchases sent directly to the recipient, or college students using their parents’ card to send something to their dorm.
For merchants with clientele primarily outside the U.S., Canada and the U.K. using AVS will have little value since few issuing banks in other countries participate.
According to the Merchant Risk Council 2019 Annual Fraud Survey, 66 percent of merchants are already using AVS. If you are not one of them, odds are you should join. As explained above, while not always sufficient proof by itself to refute a chargeback claim an AVS match can be used in conjunction with other information as compelling evidence to initiate a chargeback reversal. For this reason alone it’s probably worth the cost. When you factor in the reduction in interchange fees, using AVS is usually a straightforward proposition.
What AVS does not replace is a proper chargeback mitigation team. In a payment dispute, you need someone to gather evidence and present it in the best light to the issuer to get back your hard earned money. Justt provides a risk-free, hands-free solution that does this for you while allowing you to focus on your core business. Our success based fee means that we are incentivized to fight hard to reverse all the illegitimate chargebacks you receive.
