AVS (Address Verification System)

AVS, or Address Verification System, is a security measure used to verify the billing address provided by a customer against the address on file with the credit card issuer. This system is crucial in card-not-present transactions, such as those conducted online, where the physical card is not swiped or inserted into a terminal. By verifying the address, AVS helps to reduce the risk of fraudulent transactions by confirming that the person making the purchase has authentic access to the credit card details they are using.

Functionality and Impact on Merchants: When a transaction is initiated, the merchant submits the billing address along with the transaction details to the credit card issuer for verification. The issuer then checks this information against their records and sends back a response indicating whether there is a match. If a merchant opts out of using AVS, they may face higher processing fees, as Visa and Mastercard may charge an additional percentage on those sales. Moreover, these major card networks may not provide support for transactions where AVS is not used, increasing the merchant's risk exposure.

AVS Precheck: An enhancement to the standard AVS process is the AVS Precheck, a feature offered by services like Cardknox. This feature allows the AVS check to occur before the transaction authorization. If the AVS fails—meaning there is a mismatch between the provided and stored addresses—the transaction is declined immediately, preventing any temporary hold on the customer’s card. This preemptive check ensures that funds are only held if there is a high likelihood of transaction approval, enhancing the customer experience and reducing unnecessary credit holds.

Overall, the AVS system is an essential tool for merchants, providing an additional layer of security in card-not-present transactions and helping to mitigate the risk of fraud. By confirming that the billing address matches the one on file with the credit card company, merchants can more safely process online transactions while complying with security standards set by credit card issuers.