What is an AVS check?
Tara Daly
·June 7, 2024
As an ecommerce merchant, payment fraud can have a big impact on your bottom line. Last year, 10.5% of return attempts were fraudulent, resulting in $35 billion in losses to U.S.-based retailers.
In some cases, this is due to criminals who use stolen credit card numbers to purchase products that they can then resell. When the credit card holder becomes aware of the fraudulent charges, they’ll be eligible for a refund of the transaction from their credit card issuer—and as the merchant who accepted the fraudulent charge, you’ll be on the hook for paying them back.
Chargeback fraud is another common form of return fraud. In such incidents, a customer will place a large order and then claim it was either faulty or was never received, resulting in a full refund while being able to keep and resell the item for a profit. In fact, Netacea identified more than 1,600 ads for return fraud organizations operating in known online forums as organized crime syndicates.
To prevent return fraud from cutting into your profit margins, it’s important to put strong fraud prevention security protocols in place.
One of the most straightforward, and effective, measures is to conduct an AVS (Address Verification System) check. In this article, we’ll discuss how an AVS check works and how it can help prevent fraudulent transactions from harming your business.
What is an AVS check?
An AVS check is a security measure you can use to verify the validity of a customer’s billing address when processing credit or debit card transactions in card-not-present transactions. This check compares the numerical portion of the customer’s address, typically their street number and zip code, with the information provided by the issuing bank.
An AVS check can help prevent fraudulent activity by ensuring that the person making the transaction has access to the physical card and knows the correct billing address associated with it. It also helps to reduce chargebacks and protect both merchants and customers from potential losses.
AVS checks are commonly used for online purchases, where you don’t have the opportunity to request the physical card or a signature to confirm the purchase authorization. During checkout, customers are prompted to enter their billing address, and this information is then sent to the issuing bank for verification. (In most cases, the process takes just a few seconds.) If the AVS check fails, the transaction may be declined or put on hold for further review.
Why AVS checks aren’t enough
While AVS checks can help detect potentially fraudulent transactions, they are not foolproof. Some legitimate transactions may fail an AVS check due to incorrect input of billing address, or if the customer has recently moved and has not updated their address with the bank.
On the other hand, skilled criminals may still be able to bypass AVS checks by obtaining personal information through phishing scams or hacking into accounts.
To ensure a greater degree of security, it is important for your brand to take advantage of additional fraud prevention measures such as CVV checks (which verify the 3-digit code on the back of a credit/debit card), IP address validation, and device fingerprinting. These measures can provide an extra layer of protection against fraudulent transactions.
Building fraud prevention into your workflows
By using technology to build customized workflows for ecommerce sales and returns, you’ll be able to better detect and prevent online fraud and other forms of returns abuse.
For instance, Shopify’s Shopify Protect uses key risk indicators, including an AVS check, to determine the risk profile of a particular transaction. If the transaction shows signs of potential fraud—such as a failed AVS check, a high-risk IP address location, or multiple credit card attempts—the order can be flagged for manual review or instantly declined, protecting your brand from the risk of a future chargeback attempt.
You can also use your returns data to flag and block customers who participate in other forms of returns abuse, such as returning ineligible items or participating in “empty box” scams. Loop enables you to set custom rules for customers who meet specific criteria, such as customers who’ve returned a set number of items within a one-month period, and block them from making returns to prevent them from taking advantage of your returns policy.
Want to make sure that customers are returning products in the condition that they claim before processing their refunds? Our Two Box integration provides data insights from your warehouse or 3PL on the condition of your returned products, which you can use to manually review whether the product is eligible for a refund before processing payment. That can help you protect your margins on high-value products that you can’t afford to write off, and to detect empty box scams before you’ve processed a refund of the sale.
Getting ahead of return fraud and abuse
By implementing AVS checks and other fraud prevention strategies, you can protect your company’s bottom line and ensure that legitimate returns are processed efficiently while fraudulent ones are detected and prevented. Remember to regularly review your returns policies and procedures to stay a step ahead of scammers. By communicating clearly with customers about your return policy and addressing their concerns promptly, you can build trust and discourage fraudulent behavior.
Regularly reviewing and updating your policies, using fraud detection technology to flag potential fraudulent transactions, and educating yourself on the latest scams can go a long way in protecting your business from potential losses. By being proactive in responding to return fraud, you’ll be able to maintain a superior customer experience that protects your brand against abuse.
Ready to learn how Loop can help you prevent return fraud and abuse?
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