March 10th, 2006 by Jamie Estep
The costs of not using AVS (Address Verification System)!
Filed in: Ecommerce, Merchant Accounts | 5 comments
AVS, short for ‘Address Verification System’ is a simple verification tool businesses use, that verifies the billing address of the credit card. AVS can verify the billing ZIP code and / or the street address of the card. AVS currently is only available for cardholders in the US.
When a business keys a credit card into their terminal vs. swiping it, their terminal prompts them for an address or zip code, and this is the AVS system. When a merchant uses a online payment gateway to key in transactions, the gateway processes with the AVS system as long as an address and ZIP code are entered along with the transaction information.
AVS costs a little extra:
Normally AVS has an additional fee with it when a transaction is processed using the AVS system. This fee is normally $.05 – $.07 per each AVS transaction, and is charged in addition to the standard transaction fee for processing the credit card.
Many business owners see this additional fee, and not knowing the effects of not using it, decide to not use it so that they can save this additional 5 cents. What they don’t know and may never realize is that if AVS is not used on a keyed transaction, that transaction will downgrade to non-qualified. A non-qualified transaction is the lowest qualification level for a transaction, and has a much higher processing rate than with a qualified or mid-qualified transaction. Retail businesses will automatically downgrade to mid-qualified when keying in transactions, but will also downgrade to non-qualified when AVS is not used.
How much does it cost?
Depending on your merchant contract, a non-qualified transaction can cost as much as 2% and $.50 or more extra per transaction. What this can mean is that if you have a keyed merchant account setup at 2.3% with a transaction fee of $.25 per transaction, the downgrade to non-qualified can increase this to 4.3% and a $.75 transaction fee. Your costs to process the transaction nearly doubled, because of the desire to save a nickel. Not all merchant account downgrade fees are this bad, but they all are significantly more than the $.05 for keying in a transaction.
Use AVS!
For keyed merchants, AVS is required and should be used on every transaction. In addition to your transactions being more expensive by not using AVS, AVS is a very good fraud prevention system. For retail merchants, enter your customers billing ZIP code when you have to key in that occasional transaction.
The $.05 is much cheaper than the additional processing fee you will pay for downgrading to non-qualified.
But AVS is very error prone in my experience. And the 5 cents charge is made for each attempt so if you reject a transaction based on AVS and alert the customer (I’m talking online here) and they try a couple more times, you will be charged each time. And then the customer will call and complain that your site sucks or just leave the site and you are charged maybe $0.20 and no sale was made.
AVS definitely is prone to error. I think that the particular gateway has a lot to do with how error prone it is. Authorize.net seems to have errors frequently compared to other gateways. Network Merchants which is a similar gateway seems to be quite a bit more reliable as far as AVS goes.
I’m not sure about Verisign or Linkpoint, as I just don’t have enough experience with them.
Also, most payment gateways allow you to accept transaction if there is an AVS error. This way if there is some technical malfunction, the transaction can process and your customer wont need to come to you with the your site sucks line.
AVS Sucks. I speak from experience because I am a merchant. I just spent hours on the phone trying to purchase an online ticket, and the problem was an address verification. The idiot/lazy employee who made my address change typed “cres” instead of “crescent” and the AVS was failing my transaction.
AVS does not check for the spelling. Only check for the street# and zip code.
As an Australian who is also a legal permanent resident of the US, I’m having a lot of difficulty making online purchases with my Australian Visa credit card because of this stupid AVS system.
But if companies in the US don’t want to stimulate their economy by accepting foreign payments – who am I to argue?