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Always Decline Transactions That Fail AVS?

Address Verification (AVS for short) is an essential security measure for online merchants as well as mail order/telephone order businesses. (Read the blog entry The AVS Game to learn more about AVS). It is a useful indicator of potential fraud and can save you money by not only preventing chargebacks, but allowing you to stop the transaction from even occurring in the first place. The Authorize.net payment gateway includes a setting where a store owner can automatically decline a sale if AVS doesn’t match. (You can even have Authorize.net reject sales that CVV2 does not match as well).

But do you always want to decline a transaction just because it failed AVS? Let’s look at what AVS is supposed to accomplish as it will provide us some insight into how it should be used. AVS compares the address provided by the customer against the address their card-issuing bank has on file. The level of AVS provided depends on the credit card terminal but it always includes verifying the customer’s zip code. All modern equipment and software also verifies the street address as well.

So where does the problem come in? The address the customer’s card-issuing bank has on file is the billing address for the customer. This is not necessarily their physical address or their shipping address. For example, many people like to us P.O. Boxes to receive their mail to help protect against identity theft. These people will have a billing address that resembles P.O. Box 123, Townsville, NY 12345. But their physical address may be 1000 Main Street, Othertown, NY 12346. To complicate it more, they may want to have their order shipped to their place of employment because no one will be home to receive their delivery during business hours. That address may be 5983 Corporate Drive, Big City, NY 12383. When placing an order this customer may supply their work address as their address to be sure it is sent to their work where they can be sure to receive it. But when AVS is performed on their transaction it will fail. Other scenarios where AVS might fail would be if someone has just moved or maintains two residences.

So what value does AVS offer a merchant? A positive match is always a good sign (although it surely doesn’t mean a sale is free fraud potential fraud). A negative match is still useful as well. When you see a negative match for AVS it is a good time to pick up the telephone to call the customer. If you get through ask them about their order and ask about their address. This usually is enough to verify the sale is legitimate and you can proceed to ship your product. It will even make the customer feel warm and fuzzy that you are a legitimate and thorough business. If the number is never answered or is disconnected then the sale has a high probability that it is fraudulent and you can void it out completely. Other warning signs for fraud can also be used to determine if a sale is fraudulent. Read the article The Chargeback Challenge to learn more.

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One Response to “Always Decline Transactions That Fail AVS?”

  1. Jestep

    One thing where I see a gray area is AVS errors. Authorize.net and a few other gateway’s are highly prone to having AVS errors. The merchant has the ability to decline AVS error’d transactions, or allow them to go through. Personally, we allow them through and manually contact the customer before we ship any merchandise. Since there is a good chance that the card and address were OK, and for usability sake, we have found it better to take the little time to contact them and let the transaction go through. I’m not sure how most other business deal with this situation, or if they are even aware of it.

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