What Is an AVS Code and How Does It Prevent Fraud?

The Address Verification System (AVS) is a security feature used in card-not-present transactions. It verifies the billing address provided by a cardholder during a purchase. AVS primarily prevents credit card fraud by adding a layer of authentication.

Understanding AVS

AVS stands for Address Verification System. It is a tool used by merchants and credit card processors. Its fundamental concept involves comparing the billing address a cardholder provides during a transaction with the billing address on file with their credit card issuer. This comparison helps confirm the individual making the purchase is the legitimate cardholder.

AVS functions as a measure against fraud, enhancing security. For consumers, AVS protects against unauthorized use of their credit card information. Merchants benefit by reducing fraudulent transactions and potential chargeback losses.

How AVS Verification Works

When a customer initiates a purchase and enters their billing address, the merchant’s payment gateway transmits these details to the cardholder’s issuing bank. This transmission occurs automatically alongside the payment authorization request.

The issuing bank compares the numeric portions of the submitted street address and zip code against its recorded address for that credit card. The bank does not send the actual address back to the merchant. Instead, it returns a specific code indicating the match status of the address information. This entire process happens within a few seconds, making it largely invisible to the customer.

Interpreting AVS Response Codes

After the issuing bank compares the provided address with its records, it returns a single-letter AVS response code to the merchant. These codes indicate the degree of match between the submitted billing address and the address on file. Each code signifies a particular outcome, guiding merchants on the verification status.

For instance, a “Y” code indicates a full match, meaning both the street address and the 5-digit zip code provided by the customer matched the bank’s records. A “Z” code means a partial match where the 5-digit zip code matched, but the street address did not. An “N” code signifies no match, indicating that neither the street address nor the zip code matched the information on file. Other codes, such as “A,” “U,” or “S,” can indicate that the information is unavailable or the issuer does not support AVS.

The Role of AVS in Transaction Security

AVS results provide merchants with a data point to assess transaction risk. Merchants use these response codes to make informed decisions about whether to approve or decline a purchase. While a full AVS match suggests a lower risk, merchants may still decide to approve transactions with partial or no matches based on their internal risk tolerance and other fraud detection tools.

AVS contributes to transaction security by helping merchants identify potentially fraudulent activity. It reduces the likelihood of unauthorized transactions and can help mitigate chargebacks. Consumers benefit from this added security layer as it helps protect their credit card information and reduces the chances of their cards being used fraudulently in card-not-present environments.