The Role of AVS in Preventing Fraud & Chargebacks in Ecommerce

Trust is the foundation of every successful transaction. Yet for online retailers, maintaining this trust while protecting their bottom line presents a constant challenge. Address Verification System (AVS) has emerged as a critical tool in the fight against fraud and chargebacks, serving as a first line of defense for merchants across the global ecommerce landscape.

What is Address Verification Service?

AVS is a security system that compares the billing address a customer enters during checkout with the address on file at their credit card issuing bank. The system checks if the street address and ZIP code match, then returns a code indicating whether there's a full match, partial match, or no match at all.

For online retailers, this simple check provides valuable data about the legitimacy of a transaction without adding significant friction to the checkout process.

Why AVS Matters More Than Ever in 2025

The stakes for ecommerce fraud prevention continue to rise. According to FTC data, more than 2 million fraud reports were filed in 2020, with Americans losing approximately $3.3 billion to card fraud in just the first nine months of 2021.

The data in the provided fraud reports chart reveals some concerning patterns:

• Ecommerce fraud creates substantial financial impact, with projected losses increasing from $44.3 billion to $107 billion between 2024-2029.
• Merchants currently face annual fraud losses of $48 billion, representing a 16% year-over-year increase.
• Businesses allocate approximately 11% of yearly revenue to fraud management efforts.
• The true cost of fraud extends beyond the initial loss - for each $100 in direct fraud losses, businesses incur $207 in total costs when accounting for wholesale, fulfillment, shipping, chargebacks and processing fees.
• Address Verification Service (AVS) ranks as the second most implemented fraud detection measure with 82% merchant adoption, just behind card verification numbers at 88%.
• Address validation tools extend beyond AVS, with 60% of merchants utilizing postal address validation systems.
• Chargeback fraud impacts 34% of e-commerce businesses, accounting for 18% of all fraud disputes.
• Organizations that implement fraud prevention programs reduce attack response costs by 42% compared to unprepared counterparts.
• Three-quarters of e-commerce companies plan to increase fraud prevention budgets.
• Merchants consider various prevention methods effective: 61% favor two-factor authentication, while 53% prioritize device identification solutions.
• Consumer perspective: 43% of shoppers have experienced payment fraud, with over half facing multiple incidents.

These numbers highlight why tools like AVS have become essential components in a multi-layered fraud prevention strategy.

How AVS Simple Works

When a customer places an order on your website, the AVS check happens automatically as part of the payment authorization process. Here's the typical flow:

1. Customer enters their billing address and payment information at checkout
2. Your payment processor sends this information to the card-issuing bank
3. The bank compares the address provided with the address on file
4. The bank returns an AVS response code to your payment processor
5. Based on your settings, the transaction is either approved, flagged for review, or declined

Common AVS response codes include:

• Full match (both street address and ZIP code match)
• Partial match (only ZIP code matches)
• Partial match (only street address matches)
• No match (neither street address nor ZIP code match)
• Address not verified

Benefits of Implementing AVS

Reduced Chargebacks

Chargebacks occur when customers dispute charges with their bank instead of requesting refunds directly from merchants. These disputes often result from fraud, but they can also stem from customer dissatisfaction or confusion about charges on their statements.

When a customer initiates a chargeback, the merchant gets hit with:

• Loss of the merchandise
• Loss of the transaction amount
• Additional chargeback fees (typically $15-$40 per incident)
• Potential increases in processing fees if chargeback rates remain high

By implementing AVS, you create evidence that you took reasonable steps to verify the cardholder's identity, which can help fight "friendly fraud" chargebacks where legitimate cardholders falsely claim they didn't make purchases.

Improved Approval Rates

This might seem counterintuitive, but proper AVS implementation can actually increase your approval rates. Without nuanced fraud screening, many merchants resort to overly restrictive gateway filters that decline all transactions with any hint of risk.

The problem with such blunt approaches is clear from the statistics:

• 3.6% of all ecommerce shoppers enter incorrect billing addresses, yet 91.9% of these orders are legitimate
• 6.7% of shoppers enter partially correct addresses (resulting in partial matches), with 98.1% of these orders being legitimate
• 15% of transactions don't have exact CVV matches, yet 98.7% of these are safe to ship

By using AVS as part of a sophisticated fraud detection system rather than a simple pass/fail filter, you can more accurately distinguish between risky transactions and simple customer errors, capturing more revenue in the process.

Protection Against Card Testing

Fraudsters often "test" stolen credit card information by making small purchases to verify the card works before making larger fraudulent transactions. AVS helps identify these testing attempts when the billing address doesn't match, allowing you to block these transactions before they lead to larger fraud.

How AVS Actually Prevents Fraud & Chargebacks in Ecommerce

AVS works as a practical fraud prevention tool in several straightforward ways:

Stops Criminals Using Stolen Card Numbers

When someone steals just a credit card number, they rarely have the cardholder's exact billing address. AVS catches these fraudsters by flagging the address mismatch. This simple check blocks many basic fraud attempts before they turn into chargebacks.

Provides Evidence for Dispute Resolution

When customers falsely claim they didn't make a purchase (friendly fraud), merchants can use AVS match records to prove the buyer knew the cardholder's address. This documentation helps you win chargeback disputes by showing you took reasonable steps to verify the buyer's identity.

Balances Security with Sales

AVS gives you flexible options between blocking all suspicious orders (losing sales) and approving everything (inviting fraud). You can set rules to automatically approve full matches, review partial matches, and only decline the riskiest transactions. This balance helps explain why AVS is used by 82% of merchants, second only to CVV verification.

Catches Card Testing Without Complex Tools

Fraudsters often "test" stolen cards with small purchases before making larger ones. AVS helps identify these tests when addresses don't match, allowing you to block these transactions before they lead to bigger fraud attempts.

Works Behind the Scenes

Unlike security measures that add extra steps for customers, AVS works invisibly during checkout. It verifies information customers already expect to provide, maintaining a smooth shopping experience while still performing essential security checks.

While AVS isn't perfect—it has limitations with international orders and can't stop fraudsters who have a customer's full information—it remains one of the most cost-effective first lines of defense against ecommerce fraud.

Limitations of AVS

While valuable, AVS isn't perfect. Understanding its limitations is crucial for building an effective fraud prevention strategy:

International Transactions

AVS was designed primarily for the US market and has limited functionality internationally. Address formats and validation systems vary widely across countries, making global address verification challenging.

False Positives

Legitimate customers sometimes enter incorrect addresses for various reasons:

• They recently moved
• They're using a friend or family member's card with permission
• They made typos during data entry
• They're shipping to a different address than their billing address

Setting overly strict AVS rules can lead to declining good orders. According to research by Javelin Strategy, 39% of legitimate customers whose transactions were declined due to overzealous fraud filters never shop with that merchant again.

No Protection Against Account Takeover

If a fraudster has gained access to a customer's full account information, including their correct billing address, AVS checks will be passed. This is why AVS should always be just one component of a multi-layered fraud prevention strategy.

Best Practices for AVS Implementation

Finding the Right Balance

Rather than automatically declining all transactions with AVS mismatches, consider a more nuanced approach:

1. Full address matches: Automatically approve (lowest risk)
2. ZIP code only matches: Flag for manual review or additional verification
3. Street address only matches: Flag for manual review or additional verification
4. No match: Higher scrutiny, potentially request additional verification

This tiered approach helps balance fraud prevention with customer experience.

Combine AVS with Other Fraud Prevention Tools

AVS works best as part of a comprehensive fraud prevention strategy that includes:

• Card Verification Value (CVV) verification
• Device fingerprinting
• Email verification
• Velocity checks (monitoring the frequency of purchases)
• Machine learning algorithms that analyze multiple data points
• 3D Secure 2.0 for Strong Customer Authentication

Customer Communication

When an order is flagged due to an AVS mismatch, clear communication can save the sale:

• Explain the issue clearly without accusatory language
• Offer alternative verification methods (phone call, email verification)
• Provide easy ways to correct address information
• Train customer service representatives to handle these situations sensitively

Real-World Implementation

Setting up AVS varies depending on your payment processor, but most major processors and gateways offer AVS functionality. In Clover, for example, you can enable AVS by:

1. Going to your Clover dashboard from a web browser
2. Clicking on Account & Setup
3. Under the 'Transactions' group, clicking on Fraud Tools
4. Clicking 'Show Rules' for the Address Verification System (AVS) group
5. Selecting your preferred options and saving

Cost-Benefit Analysis

When evaluating AVS implementation, consider these factors:

• Average chargeback rate in your industry
• Average order value
• Current fraud losses
• Processing fees for declined transactions
• Potential lost sales from false declines

For most ecommerce businesses, the ROI on proper AVS implementation is substantial. With the average ecommerce chargeback costing 2.5 times the transaction amount (including fees, lost merchandise, shipping, and processing costs), prevention quickly pays for itself.

Looking Forward: The Evolution of Address Verification

Address verification continues to evolve beyond simple matching. Modern address verification services now include:

• Parsed and normalized addresses to resolve formatting inconsistencies
• Geolocation data for distance calculations
• Network signals that identify suspicious patterns
• Real-time risk scoring based on multiple data points

These advanced capabilities help identify both high-risk and low-risk addresses with greater accuracy, further reducing false positives while catching more fraud attempts.

Conclusion

Address Verification Service may seem basic compared to some cutting-edge fraud prevention technologies, but it remains a critical foundation of ecommerce security. When implemented thoughtfully as part of a layered approach to fraud prevention, AVS helps strike the right balance between security and customer experience.

By understanding how AVS works, its benefits, and limitations, you can make informed decisions that protect your business from fraud without turning away legitimate customers. In today's competitive ecommerce landscape, that balance isn't just good security practice—it's good business.

Streamline Your Inventory and Order Management with Flxpoint

Managing fraud prevention adds another layer of complexity to running an ecommerce business. While tools like AVS are essential for protecting your bottom line, they require careful implementation and monitoring.

By automating inventory management, order processing, and fulfillment operations with a platform like Flxpoint, you can free up valuable resources to focus on optimizing your fraud prevention strategy and other revenue-generating activities.

Request a demo today!

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