What Is an Address Verification Service (AVS)?

Address Verification Service (AVS) Explained in Less Than 4 Minutes

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An address verification service (AVS) is a tool provided by credit card companies and banks to prevent credit card fraud. AVS verifies the billing address submitted by the user with the address on file at the cardholder’s bank.

AVS is used by major credit card companies Visa, American Express, MasterCard, and Discover. If you’re a small business owner getting ready to enter the online arena, it helps to understand how this process works and how it helps you as a merchant. As a consumer, it’s important to know how your information is being used and verified.

Definition and Example of an Address Verification Service (AVS)

AVS is a fraud-prevention system designed to limit credit card fraud and potential chargebacks. If you use a debit or credit card in an online transaction, the credit card issuer must verify that your billing address you use for the transaction matches the address you have on file with your bank.

  • Acronym: AVS

For example, you have to buy some coffee pods on Amazon. You find exactly what you’re looking for and make the purchase with a credit card. Amazon communicates with your bank to make sure your billing address is correct.

How an Address Verification Service Works

If you use a debit or credit card in an online transaction, the credit card issuer must verify that your billing address matches the address you have on file with your bank.

Once your card issuer compares the transaction's billing address with your address on file with the bank, the bank sends a one-digit AVS code to the merchant. Merchants then use this code to determine whether or not to accept or reject the credit card transaction.

AVS is a valuable tool for preventing card-not-present fraud, where a card thief uses the card’s information but doesn’t physically possess the card.

Imagine that you placed an online order using your American Express card. Before approving the transaction, the merchant submits the billing information you provided to American Express. From there, American Express sends this information to your bank, where the billing address is compared to the address on file. American Express checks to ensure that your billing address and five-digit zip code match.

American Express sends a code to the merchant based on the information received. This code helps the merchant determine whether to approve or deny the transaction.

Some codes are the same across credit card networks, and some are different. Here are the common codes merchants might expect to receive, and what each one means:

  • Y: This code means the addresses and zip codes match. For Discover cards, this code means only the address matches.
  • A: This code means the addresses match, but the zip codes don’t. For Discover cards, this code means the address and zip code match.
  • Z: This code means the zip codes match, but the addresses don’t.
  • N: This code means that neither the addresses nor the zip codes match.

Pros and Cons of an Address Verification System

Pros
  • AVS helps protect consumers against card-not-present fraud

  • Information is verified in real time

  • Protects both merchants and consumers

Cons
  • Not a foolproof way to prevent credit card fraud

Pros Explained

  • Helps prevent card-not-present fraud: Scammers may be able to gain access to a consumer’s credit card number, but they don’t usually have access to their address. For that reason, AVS can help cut down on card-not-present fraud.
  • Verifies info in real time: E-commerce transactions happen quickly, and AVS verifies the cardholder’s information in real time.
  • Protects merchants and consumers: AVS protects cardholders from credit card fraud and protects merchants from costly chargebacks.

Cons Explained

  • Can’t completely prevent fraud: AVS is an effective tool, but it can never entirely prevent card-not-present fraud.

Key Takeaways

  • Address verification service (AVS) is a tool used by credit card companies to prevent card-not-present fraud.
  • When a consumer makes an online payment, the merchant verifies that the billing address matches the address on file with the issuing bank.
  • After comparing the two addresses, the bank sends a one-digit verification code to the merchant, and the merchant will use this information to either approve or deny the transaction.
  • AVS is a useful tool to protect consumers from credit card fraud and businesses from costly chargebacks.
  • AVS can never entirely eliminate card-not-present fraud.

Article Sources

  1. J.P. Morgan & Chase Co. "AVS Response Codes."