What Is AVS Postal Code Verification?

Core Function of AVS Postal Code Verification

The Address Verification System (AVS) is a widely used fraud prevention tool in payment processing, particularly for transactions where the physical card is not present, such as online purchases or telephone orders. It plays a fundamental role in bolstering security during these card-not-present transactions. AVS helps to confirm that the person making a purchase is the legitimate cardholder, thereby protecting both consumers from unauthorized use of their financial accounts and businesses from fraudulent activity.

AVS postal code verification specifically focuses on confirming the billing postal code provided by a customer against the information on file with the card issuer. Its primary purpose is to combat fraud by ensuring the cardholder’s billing address, with particular emphasis on the postal code component, matches the records held by their bank. This verification process is crucial for merchants as it significantly reduces the likelihood of chargebacks stemming from fraudulent transactions, which can incur fees ranging from approximately $20 to $100 per incident, alongside the loss of goods or services.

Employing AVS postal code verification allows businesses to confidently approve legitimate transactions, which improves customer satisfaction by minimizing false declines. This system is in environments where the card is not physically swiped, providing a layer of security. The accuracy of the postal code match contributes directly to the merchant’s ability to assess transaction risk effectively.

The AVS Matching Process

The AVS matching process begins when a cardholder submits their payment details for a transaction where the card is not physically present. The merchant’s payment gateway transmits the customer-provided billing address, including the postal code, along with other transaction data, to the acquiring bank. This information then travels through the relevant card network and is routed to the card issuer.

The card issuer’s system performs an automated comparison of the billing postal code submitted with the transaction against the billing postal code stored in their records for that specific card account. This comparison is a swift, behind-the-scenes operation. Following this review, the card issuer generates a specific AVS response code. This code, indicating the level of match found, is then sent back through the card network and acquiring bank to the merchant’s payment gateway.

Handling AVS Mismatches

Upon receiving an AVS response code, merchants interpret this information to determine the appropriate action for the transaction. Common AVS codes include:
‘Y’ for a full match of both the street address and the 5-digit postal code.
‘X’ for a match with a 9-digit postal code.
‘Z’ indicates that only the 5-digit postal code matches.
‘A’ signifies that only the street address matches.
‘N’ response means neither the address nor the postal code matches the issuer’s records, indicating a high-risk scenario.

Merchants typically configure their payment systems to automatically approve transactions with full AVS matches, as these carry the lowest fraud risk. For partial matches, such as ‘Z’ or ‘A’, businesses may implement additional security measures, like requiring a CVV code verification or setting a lower transaction value threshold for approval. Transactions receiving an ‘N’ response are frequently declined automatically due to the elevated fraud potential. The merchant retains the final authority to approve or decline a transaction based on their established risk tolerance and other fraud prevention protocols.