The Address Verification System (AVS) is a way to verify the identity of the person using a credit card online by checking their address. The Address Verification System is designed to reduce the risk of fraud and increase payment gateway security.

The Address Verification System, or AVS, is a security feature that may help reduce merchant liability for fraudulent charges and protect customers whose credit card information has been stolen. Though the Address Verification System is not foolproof, AVS can help merchants reduce the number of fraudulent credit card transactions they process, and therefore the number of chargebacks and fines they have to pay. Though banks or payment gateway services charge a small fee for AVS, the reduction in fraud and the extra peace of mind AVS provides are worth the cost for some merchants.

When using the Address Verification System with their payment gateway, merchants request the customer's billing address along with the rest of their credit card information. The merchant submits the billing address along with the credit card information to the customer's issuing bank. The bank then checks the numbers in the address, especially the street number and zip code, against the address on file for the customer, and returns a verification to the merchant through AVS if all or part of the address is a match. Once they receive the response from AVS, the merchant can decide if they want to proceed with the transaction.

The Address Verification System does have some limitations. Though all major credit cards can be used with AVS, not all card issuers support address verification. Additionally, sometimes when using AVS the bank will return a positive verification on only part of the address. For instance, the system may respond that the zip code is correct, but the street number is not. This may indicate that the charge is fraudulent, but it can also mean that the customer typed the address incorrectly, that their bank has the wrong address on file, or that their address is unusual and is not recognized by the Address Verification System. Customers must enter their billing address exactly as it appears on their monthly statement, and may need to contact their card issuer to make sure their address is up to date if they have problems with AVS. Also, when a  customer has recently moved, AVS may not be up to date. If the Address Verification System reveals that the billing address is incorrect, the merchant will have to either decline the transaction, or talk to the customer to decide if they are legitimate or not.

Another drawback of the Address Verification System is that AVS cannot protect merchants if the thief who stole the credit card information also stole the customer's address. In this case, the billing address will be correct and will receive a positive verification through AVS, but the charge may still be fraudulent. Of course, if the shipping address is the same as the billing address, the chances of fraud are greatly reduced, but if the item is being shipped as gift there may be a legitimate reason for the addresses to be different. Also, if the customer is purchasing a service or downloadable product there may not be a shipping address to compare with the billing address entered into AVS, and the merchant may again be unaware of fraud.

Fraudulent charges are a major drawback to doing business online, and there is no security feature or system guaranteed to stop all credit card fraud. Because merchants may be liable for fraudulent charges, and can lose a lot of money through chargebacks, fines, and merchandise lost to fraud, it is important to put reasonable protection measures in place like the Address Verification System. Though AVS has some drawbacks, and may not be the best solution for every online business, it can be part of a payment gateway security system that can reduce the risk of fraudulent charges. 

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