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The AVS Game

Address Verification (AVS for short) is a service that verifies the cardholder’s billing address in order to combat fraud in mail order/telephone order transactions (see the merchant account glossary). AVS is required on all non-swiped Visa and MasterCard transactions.

How AVS works is simple, when a merchant key enters a credit card sale into their credit card terminal (or POS Software. Internet merchants will use a Payment Gateway) they will be prompted to enter the cardholder’s billing street address and zip code. This information is then sent to the processing bank and compared to what the card issuing bank has on file. A code representing which fields matched are returned to the merchant (see chart below) and the merchant then determines if they wish to proceed with the sale. If both fields match, it is usually assumed the customer is the cardholder and the transaction is safe. If neither match, the merchant has to decide if they want to proceed with the sale as it is assumed the customer is not the cardholder. If only one field matches, the merchant must also decide if they feel comfortable completing the sale. Most major online retailers will not allow a transaction to proceed unless a complete match is returned.

Here are the AVS codes you need to know:

X or Y – Both the numeric address and the Zip code match the card issuing bank’s database.

A – Address matches but the Zip code does not.

W or Z – Zip code matches but numeric address does not.

N – Neither the zip code or street address matches.

U – The issuing bank doesn’t support AVS.

G – An international credit card. AVS is not supported.

So what is the game? Well, there is a charge every time AVS is performed. It usually is about 5¢ per transaction. It’s a small cost for security and the cost itself isn’t an issue. How this fee is presented is an issue. For retail businesses this isn’t as important as very few sales will be keyed into their credit card terminal and the pricing is usally built into any surcharges that result from keying in the sale. But for mail order and Internet merchants this is often not the case.

Typically a sales agent will advertise their rates as a percentage rate and flat transaction fee. For example: 2.30% plus 30¢. There are other fees associated with merchant accounts but because these two fees tend to add up the greatest amounts, and also are the main differences between competitors, so the rest typically go unnoticed. It is unfortunately common for sales agents to separate AVS from their transaction fee when advertising to mail order and Internet merchants.

Why do they do this? Because by separating this fee they can claim their transaction fee is 5¢ lower then it really is. They often fail to tell their prospective mail order and Internet merchant that they must do AVS on every transaction or else be charged a significantly higher rate. When a merchant fails to do AVS on a non-swiped transaction, they are automatically charged the highest rates available from Visa and MasterCard. So, in an effort to make their offer look better, some sales agents put the merchant in a bad spot: either pay an extra 5¢ they never bargained for every time they process a transaction or get gouged by their processor. And the fact that these same sales agents lock their merchants into long term contract only makes the scam that much worse.

So, what do you do? It’s simple really. When shopping around for your merchant account be sure to ask if AVS is included. If not, find out how much it is and add it to your transaction fee to see what your real transaction fee is.

One Response to “The AVS Game”

  1. Wes

    This is exactly what I was looking for. This site has pointed me in the right direction more than once. Thanks!

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