You're accepting credit cards and hopefully things are going smoothly. Well at least until fraud takes place. Do not be alarmed, there is a way to minimize and prevent it from happening.
If the majority of your business is generated from card not present transactions, then it's very important that you understand how Address Verification Services function.
AVS is the process of validating a cardholder's given address against the issuer's records to determine accuracy and deter fraud. This service is required by VISA and MasterCard as a part of credit card authorization for mail order / telephone order transactions. The non-qualified rate will be applied to all card not present transactions that do not use AVS. Understanding the AVS process can save you hundreds, if not thousands in fees, fraud, and from charge backs.
Many merchants are not aware of this regulation. As a merchant, that accepts or will be accepting many card not present transactions, please contact your merchant account provider and make sure AVS is built into your equipment's processing system.
The AVS provides a code that is returned with the authorization result that reflects the level of accuracy of the address match. The response codes and their definitions are as follows:
Response Code Definition
X Exact match, address and 9-digit zip code
Y Exact match, address and 5-digit zip code
A Address matches, zip code does not
W 9-digit zip code matches, address does not
Z 5-digit zip code matches, address does not
N Address and zip code doe not match
U Address information is unavailable
R Retry, system is unavailable
S Service is not available
E Data not available / error invalid
A merchant must establish certain parameters in order to accept card orders online. These parameters are set up and passed on to the merchant provider and bank. When a customer enters a credit card number and address, that information is sent through the AVS. Based on the parameters the merchant has in place, along with other information, the credit card will be either accepted or denied.
The AVS verifies if the address provided by the cardholder matches the billing address that was provided on the credit card application. If it does not match, the merchant is alerted. At that point the merchant can do one of two things; contact the customer to collect more information or deny the transaction.
The AVS is a system designed to help protect against fraudulent activity, stolen and lost credit cards, and charge backs. Accepting credit cards online is a very high risk transaction because the merchant is not physically in front of the customer or credit card. It's the only way of verifying the customer's identity. Using AVS also ensures that you are paying the right discount rates for your transactions instead of the non-qualified (highest) rates.