AVS (Address Verification System): Overview and Alternatives

AVS What is AVS?

AVS (Address Verification System) is a fraud prevention mechanism in the payment ecosystem that verifies the billing address of a cardholder during a transaction. It compares the billing address provided by the customer with the address stored by the card issuer. AVS is commonly used in card-not-present (CNP) transactions, such as online or mail-order purchases, where the risk of fraud is higher.

How AVS Works

1. Cardholder Inputs Address: During checkout, the customer provides their billing address.
2. Address Comparison: The payment processor sends the address details (e.g., house number and ZIP code) to the card issuer.
3. Response Code: The card issuer checks the provided address against the one on file and returns an AVS response code indicating the match level (e.g., full, partial, or no match).
4. Merchant Action: Based on the AVS response code, merchants decide whether to approve, flag, or decline the transaction.

AVS Response Codes

• Full Match: Both address and ZIP/postal code match.
• Partial Match: Either the address or ZIP/postal code matches.
• No Match: Neither the address nor ZIP/postal code matches.
• Unavailable: The card issuer does not support AVS.

Limitations of AVS

• International Transactions: AVS often fails due to differences in address formats between countries.
• Fraudulent Workarounds: Fraudsters may use stolen billing addresses to bypass AVS checks.
• Legitimate Failures: Transactions may be incorrectly declined if the cardholder enters address details incorrectly or if the issuer’s records are outdated.

Alternatives to AVS

1. Card Security Code (CVV/CVC): Verifies the 3- or 4-digit code on the physical card to confirm possession.
2. 3D Secure (3DS): Adds an extra layer of authentication, requiring cardholders to complete additional verification steps (e.g., OTP or biometric).
3. Tokenization: Replaces sensitive card data with encrypted tokens to prevent data theft.
4. Device Fingerprinting: Analyzes the user’s device to detect anomalies or suspicious activity.
5. Geolocation Verification: Matches the customer’s location to the billing address or card issuer’s region.
6. Behavioral Analytics: Monitors user interaction patterns to detect fraud.
7. Machine Learning: Uses real-time and historical data to identify deviations and flag high-risk transactions.

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Addressing AVS Issues for FreelancePay’s Use Case

Let’s imagine a FinTech company in the opposite side of the globe, Bangladesh, named FreelancePay, which is head quartered in USA but issues cards to Bangladeshi freelancers through Marqeta or Stripe and links them to a U.S.-based bank account. The users of FreelancePay often face transaction failures because AVS enforces U.S. billing address requirements. Here are actionable solutions to mitigate these challenges:

1. Assign a Uniform Virtual Billing Address

• Solution: Configure a single U.S.-based billing address for all FreelancePay-issued cards.
• Implementation: Work with Marqeta or Stripe to set this address and educate freelancers to use it during transactions.
• Pros: Simplifies the process and bypasses AVS issues for merchants using partial AVS checks.
• Cons: Ineffective for merchants requiring full AVS match.

2. Request AVS Relaxation for FreelancePay Cards

• Solution: Negotiate with Marqeta or Stripe and card networks to relax AVS checks for your card program.
• Implementation: Request AVS exemptions or minimize strictness for international users.
• Pros: Directly addresses the root cause of failures.
• Cons: May not work universally, as some merchants still enforce AVS.

3. Enable 3D Secure (3DS) Authentication

• Solution: Replace AVS with 3DS authentication, where cardholders verify transactions via OTPs or biometrics.
• Implementation: Enable 3DS through Marqeta or Stripe for your card program.
• Pros: A globally accepted alternative that enhances security.
• Cons: Requires user interaction for authentication.

4. Tokenization and Mobile Wallets

• Solution: Allow freelancers to link FreelancePay cards to wallets like Apple Pay or Google Pay, bypassing AVS during transactions.
• Implementation: Enable tokenization via Marqeta or Stripe.
• Pros: Eliminates reliance on AVS entirely.
• Cons: Requires freelancers to have compatible devices and wallets.

5. Educate Freelancers on Merchant Compatibility

• Solution: Identify merchants that accept partial AVS matches or do not require AVS and share this information with freelancers.
• Implementation: Compile a list of supported merchants and guide users on address entry (e.g., ZIP code only).
• Pros: Quick and cost-effective.
• Cons: Limited to certain merchants.

6. Implement Dynamic Address Mapping

• Solution: Automatically map Bangladeshi freelancers’ addresses to pre-configured U.S. billing addresses using middleware.
• Implementation: Build an API to handle address mapping dynamically during transactions.
• Pros: Seamless for users and improves transaction success rates.
• Cons: Requires custom development and maintenance.

7. Advocate for International AVS Compatibility

• Solution: Collaborate with Marqeta or Stripe and card networks to create programs that accommodate international users.
• Implementation: Advocate for reduced AVS dependency in global payment ecosystems.
• Pros: Long-term scalability.
• Cons: Requires extensive discussions with stakeholders.

Recommended Approach for FreelancePay

1. Short-Term Fix: Use a virtual billing address and educate freelancers on its use.
2. Medium-Term Strategy: Enable 3D Secure and explore tokenization with mobile wallets.
3. Long-Term Goal: Partner with Marqeta or Stripe to develop international-friendly AVS alternatives and advocate for broader AVS compatibility.

By implementing these strategies, FreelancePay can ensure smoother transaction experiences for its users and address AVS-related challenges effectively.