What is Address Verification Service & Does It Prevent Fraud?

I always recommend including AVS in your chargeback management plan. But I’ve never written a guide about it — until now.

In this guide, I’ll cover what AVS is, how it works, why you might need it, and more.

Let’s get to it.

Key Takeaways

• AVS checks billing details against cardholder data to stop card-not-present fraud.
• It works best when paired with tools like CVV checks and 3D Secure.
• This tool verifies numeric address elements with the card issuer’s records.
• Limits include false declines, region restrictions, and only checking numeric data.
• Chargeback alerts and fraud prevention plugins provide extra security beyond AVS.

AVS is effective for preventing fraudulent chargebacks in certain areas. But what about non-fraud disputes outside its coverage?

That’s where chargeback alerts come in. They notify you before a customer files a dispute, giving you a chance to issue a refund and avoid a chargeback.

We offer these alerts. Learn more about how they work.

What is Address Verification Service, Anyway?

Address Verification Service (AVS) is a fraud prevention tool. It helps businesses confirm a customer’s identity. How? By matching the billing address given during a transaction with the one stored by the card issuer.

Merchants would use AVS for card-not-present (CNP) transactions. These include online purchases, where fraud risks are higher.

It checks the numbers in the billing address, like the ZIP code or street number. If they don’t match, it could mean the card is being used without authorization. This helps merchants decide whether to approve, decline, or investigate the transaction.

We’ll dive deeper into how it works in a moment.

Major credit card companies, like Visa, Mastercard, and American Express, support AVS.

It’s used in regions such as:

• United States
• Canada
• United Kingdom

Some claim AVS is also available in Australia and New Zealand. But evidence suggests otherwise.

Now, let’s explore how AVS works in detail.

Summary: AVS verifies billing address details to prevent fraud in card-not-present transactions.

Here’s How it Works

Here’s how AVS works, step by step:

1. Customer enters their billing address and payment details during checkout.
2. Merchant requests an AVS check from the payment processor.
3. Issuing bank compares the numeric parts of the billing address with its records.
4. Issuer confirms if the account is valid and has enough funds.
5. Credit card provider sends an AVS response code back to the merchant.
6. Merchant decides whether to approve, decline, or look into the transaction.

This process happens quickly — usually in seconds — without the customer noticing. During this time, the card issuer places a temporary hold on the sale amount.

Most holds clear within 5 – 7 business days. But in some cases, they can take up to 30 days.

If delays happen, the cardholder may need to take action to resolve them.

If an AVS check fails, the issuer may automatically decline the transaction.

Customers might see a pending charge for a failed transaction. Don’t worry — this hold is removed, and no money is taken.

Here’s an example of AVS in action:

Imagine a customer buying online. They enter a billing address like "742 Evergreen Terrace, Apt 7, 12345." The AVS check finds that the ZIP code matches, but the street address doesn’t. The issuer then sends a partial-match AVS code.

The merchant could choose to investigate the payment further to confirm if it’s legitimate.

Glossary:

• AVS codes: Single-letter codes that show if the address matches.
• CVV: The 3-digit number on the back of the card. It ensures the customer has the card.

What limits does Address Verification Service have?

Important Considerations & Limitations

AVS is a powerful tool, but it has limitations you should know:

• Only protects card-not-present fraud: It won’t stop in-person fraud.
• Focuses on fraud: It won’t prevent other types of chargebacks.
• Region restrictions: AVS works in the US, Canada, and the UK.
• Matches only numeric data: Only checking numbers can cause mismatches for legitimate customers.
• Risk of false declines: Overusing AVS codes can lead to rejecting valid transactions.
• Prone to mismatches: Outdated or incomplete address records can flag legitimate purchases.
• Workarounds exist: Fraudsters can still steal and use a cardholder’s correct address.

Imagine a customer is traveling and their billing address temporarily changes.

AVS may falsely flag their transaction, causing a decline. The same issue might happen if the customer recently moved.

Both scenarios risk losing a long-term customer.

To address these limitations, combine AVS with other fraud prevention tools. Use systems like CVV checks, device fingerprinting, and machine learning to strengthen security.

Regularly analyze AVS response patterns. Use your findings to adjust settings and lower the chance of false declines.

Also train your staff to interpret AVS codes correctly. This ensures they handle mismatches. Reducing unnecessary declines and improving the customer experience.

I mentioned AVS codes earlier in the guide. Let’s dive deeper into them.

AVS Codes: What They Are & Different Codes

AVS codes are single-letter responses sent by the issuing bank after performing an address check. These codes show how well the billing address provided by the customer matches the one on file with the card issuer.

Merchants rely on these codes to decide whether to approve, decline, or investigate a transaction further.

Here are address verification codes you may encounter:

1. Codes for all networks:

Codes used across all networks (Visa, Mastercard, Discover, and American Express):

Some AVS codes are shared by multiple card networks. Others are unique. For example, Visa, Mastercard, and Discover all use the code “X” to indicate a full match (address and ZIP code match). However. American Express doesn’t use this code.

2. Visa:

Visa shares several AVS codes with other networks, which explains why you may notice duplicates across multiple providers.

3. Mastercard:

4. American Express:

5. Discover:

How Effective is It in Preventing Chargebacks?

It’s hard to say exactly how much the Address Verification System (AVS) reduces fraud.

The impact depends on several factors, such as:

• Industry: Some industries, like e-commerce, face higher fraud risks than others.
• Merchant practices: The way merchants use AVS with other tools affects its success.

For example, some merchants may decline all partial matches. Meanwhile, others review them before deciding.

These differences in risk tolerance can change how effective AVS is.

AVS is rarely used on its own. Most merchants pair it with other tools, like CVV checks, device fingerprinting, or machine learning. This layered approach spreads the credit for fraud prevention, so it’s tough to measure AVS’s standalone performance.

Plus, there’s little public data about its effectiveness.

That’s probably not the answer you were hoping for.

Let’s explore other fraud and chargeback prevention tools with proven success rates.

Other Ways to Prevent Chargebacks

Here are some other tools that’ll help you prevent chargebacks:

• Chargeback alerts: Notifies merchants when a customer is about to file a dispute.
• 3D Secure: Adds two-factor authentication to transactions to reduce fraud.
• Order Insight and Consumer Clarity: Provides detailed purchase information.
• Improve product descriptions: Reduces disputes by ensuring products match customer expectations.
• Improve quality control: Ensures items are well-packed and undamaged before shipping.

Sellers like Verifi and resellers (like us) usually charge per chargeback alert. Each alert warns you when a customer might file a chargeback. Giving you time to decide whether to fight it or issue a refund.

For example, if the dispute is fraud-related, your chances of winning are very low. Thus, it’s better to refund the customer. But if you suspect friendly fraud you may decide to challenge the chargeback. As it has a higher chance of success.

While chargeback alerts are expensive, they can reduce chargeback rates by up to 91%. I’ve written a separate guide to help you decide if this tool fits your business.

3D Secure uses two-factor authentication. Often requiring customers to verify their identity by entering a code sent via email or text. This adds a small hurdle to purchases and may cause abandoned carts.

However:

It has reduced chargebacks by up to 70% in some cases.

I’ve covered its pros, cons, and case studies in another guide — feel free to check it out.

Consumer Clarity (by Ethoca) and Order Insight (by Verifi) help customers remember their purchases. It does this by providing itemized transaction details.

Consumer Clarity has reduced chargeback rates by up to 23% on eligible transactions. Order Insight has achieved reductions as high as 70%. These tools are free to implement but require you to contact Verifi or Ethoca customer support.

Improving your product descriptions and quality control can also reduce chargebacks. Clear, accurate descriptions help prevent disputes over mismatched expectations.

Meanwhile, good quality control ensures products arrive undamaged. Both improve the customer experience and reduce the likelihood of disputes.

If you’re looking for more chargeback prevention strategies, check out my guide. It includes tips for tackling friendly fraud. The leading cause of chargebacks for many merchants.

That being said, is AVS even worth using?

Should I Use AVS for My Business?

The Address Verification Software (AVS) market is expected to grow at a compound annual growth rate (CAGR) of 11.75% [1]. This reflects increasing adoption by businesses in various industries. It also highlights the growing need for fraud prevention in a digital-first world.

Whether AVS is right for your business depends on your industry, transaction risks, and operational needs.

Here's a breakdown to help you decide:

When AVS is a good fit:

• High card-not-present transactions: Businesses that operate mostly online.
• Frequent sales in supported regions: Folks in the US, Canada, and the UK.
• Fraud concerns: Ideal for industries like e-commerce or digital goods.
• Chargeback prevention needs: If reducing chargebacks is a priority for your business.

Scenarios where AVS may not be ideal:

• Global transactions: Limited availability outside its primary regions.
• Low fraud risk: If most of your sales happen in-person or involve low-risk payments.
• High false decline sensitivity: If your customers frequently update their billing details.

Implementing AVS comes with costs, like processing fees and potential transaction delays. Weigh these costs against the benefits to see if it’s worth it for your specific needs.

If you’ve decided to use AVS, you’re probably wondering how to get started. Let’s dive into that next.

How Do I Get Started With AVS?

The steps to get started with Address Verification Service depend on your payment provider.

Here’s how to integrate AVS into your fraud prevention strategy:

Step 1: Check Your Payment Provider

Most popular payment processors, like Stripe or Adyen, include AVS as part of their fraud prevention tools. If you already use one of these platforms, you might just need to enable AVS in your account settings or confirm it’s configured right.

Step 2: Explore Third-Party Apps or Plugins

If your payment processor doesn’t include AVS, you can use third-party apps or plugins. Platforms like Shopify offer tools that integrate address verification.

Pricing for fraud prevention apps ranges from $20 to $100 per month. The costs depend on features and transaction volume.

Some also charge extra per transaction for premium services.

Step 3: Build a Custom Solution

If you have an in-house development team, building a custom AVS system gives you more flexibility and control. You can tailor the system to your needs and integrate it into your existing setup.

Here are a couple considerations when going this route:

• API Costs: Address verification APIs charge per verification or offer tiered pricing.
• Development time: Building a custom system may take weeks or months, and it will require ongoing maintenance.

The best option depends on your business needs, technical resources, and budget.

For a fast setup, using built-in AVS from your payment provider or a third-party app works well. 

If you need a tailored solution, investing in a custom setup could bring long-term advantages.

Let’s finish this up.

Wrapping Up

AVS alone isn’t very effective at preventing chargebacks. It only targets certain fraud cases in limited countries. To improve its effectiveness, you’ll need to pair it with other tools, like 3D Secure (3DS).

To handle other types of chargebacks, you’ll need more solutions. That’s where chargeback alerts come in. They’re great for preventing all types of chargebacks.

We’re a certified reseller of these alerts and provide access to them on one platform.

Give them a try.

Sources

• [1] Address Verification Software Market. Maximize Market Research. 2024.