What Is AVS on a Credit Card and How Does It Work?

What is AVS?

The Address Verification System (AVS) is a fraud prevention tool that verifies the billing address provided by a credit card user during a transaction. It helps merchants determine if the person making an online or phone purchase is the legitimate cardholder. AVS adds a layer of security by comparing the entered address with the address on file with the card issuer.

How AVS Works

When a customer initiates an online or phone transaction, they provide their credit card number, expiration date, and billing address. The merchant’s payment gateway transmits this information, along with transaction details, to the card network. This network, such as Visa or Mastercard, forwards the address data to the cardholder’s issuing bank for verification.

The issuing bank compares the numeric components of the provided street address and zip code against the billing address on file for that credit card. AVS checks only the numbers in the street address and the full zip code; it does not verify the cardholder’s name, apartment number, or other non-numeric details. The bank then sends a response code to the merchant, indicating the level of address match.

Understanding AVS Response Codes

Upon receiving an AVS request, the card-issuing bank returns a specific code indicating the outcome of the address verification. These codes inform the merchant how well the provided billing address matches the address on record. For example, “Y” signifies a full match, meaning both the street address and 5-digit zip code match the issuer’s records.

Other common codes include:
“A”: Only the street address matches, but the zip code does not.
“Z”: Only the 5-digit zip code matches, but the street address does not.
“N”: Neither the street address nor the zip code matches the information on file.
“U”: Address information is unavailable.
“S”: Issuing bank does not support AVS.

Impact of AVS on Transactions

The AVS response code directly influences how a merchant processes a transaction. A full match, such as a “Y” code, signals a lower risk of fraud and leads to immediate transaction approval, assuming other fraud checks are cleared. Conversely, an “N” code, indicating no match, triggers a higher fraud alert for the merchant.

Merchants configure their payment gateways with rules based on these AVS codes and other fraud detection parameters. For example, a merchant might automatically decline transactions with an “N” response code to mitigate risk. Transactions with partial matches, such as “A” or “Z” codes, may be flagged for manual review or proceed with additional verification steps before final approval. This allows businesses to balance fraud prevention with customer convenience.

Why AVS Matters

AVS benefits both credit cardholders and businesses. For cardholders, it adds a layer of protection against unauthorized use of payment information, especially in online shopping. This system helps prevent fraudsters from making purchases even with stolen credit card numbers, as they are unlikely to possess the correct billing address.

For merchants, AVS helps minimize financial losses from fraudulent transactions and chargebacks. A chargeback occurs when a cardholder disputes a transaction, often due to fraud, leading to the merchant losing the sale amount and incurring additional fees, which can range from $20 to $100 per dispute. By using AVS, merchants can reduce their exposure to these costs, protecting revenue.