- American Express & Discover Card
- CISP Certification
- Discount Rates
- Electronic Checks
- Fraud Screening
- High Risk Merchant Accounts
- How Transactions are Processed
- Keyed Transactions
- Merchant Account Fees
- Offshore Merchant Account
- Payment Gateways
- Reasons for a Merchant Account
- Select a Merchant Account Provider
- Terminated Merchant File
- Third Party Processing
- Types of Merchant Accounts
- Understanding AVS
- Understanding Chargebacks
- What is a Merchant Account
Understanding AVS
An additional security check against fraud or theft is the address verification system or AVS which can be used by a merchant for extra protection.
The AVS or address verification system is a security feature used by merchant account authorization networks to compare the numeric portion of the customer street address and the customer zip code with the information on file at the card issuing bank as the customer’s billing address. If there is no match, the merchant has the choice of refusing the sale, or revising the information, or disabling the AVS system.
AVS approval is just one of the methods which can be used by ecommerce merchants to protect against excessive loss due to fraud or chargebacks. In the case of ecommerce, the merchant is responsible for losses due to fraud, unlike retail businesses where the sale is a “card present” transaction. Where the card is present and is swiped, the issuing bank must assume the loss if the card was fraudulently used. The ecommerce transaction is different. The merchant must assume the responsibility for verification of the card.
Card verification for the online merchant should be a combination of various methods for security. Address verification systems are just one of these methods. If the ecommerce merchant uses the AVS and the transaction is denied, the merchant should proceed to other methods of card verification.
The address verification system is an added cost, usually between five and seven cents per transaction, but the results of not using it in an ecommerce card not present transaction are to downgrade the transaction discount rate from mid-qualified to non-qualified which can be much more expensive in the long-run as the percentage rate can be .25 % up to 1.5% or even more per transaction.
The short answer to the question “Is AVS approval really needed?” is “no”, but on the other hand, the financial risk of not using AVS can be significantly higher, and the actual cost of the transaction is higher, simply because of the downgrade of the discount rate. Setting up a fraud protection system can be expensive, but being ripped off by a fraudulent transaction can be even more expensive.
Even for retail merchants who occasionally must key in transactions rather than swiping them, keying in the five digit zip code is a form of address verification which will help to prevent the drop in qualification levels.
Many merchant account systems have the option of an address verification system to assist the online merchant to prevent fraud. An address verification system will not totally prevent unauthorized use of a credit card number, but it will make it more difficult for the criminal to get away with it.
If the merchant has reason to suspect misuse of a credit card, he can perform additional checks such as contacting the credit card issuing company’s Customer Service line, or verifying a charge via telephone with the customer. Credit card issuing banks will often verify an out of the ordinary purchase with the customer directly if there is reason to suspect unauthorized use of the credit card.