Address Verification System: Finding the Sweet Spot to Prevent Fraud

Address Verification System: Finding the Sweet Spot to Prevent Fraud

As the war on fraud wages on, enlisting more fraud controls isn’t always the best course of action. Instances of fraud need to be examined and methods of prevention to be tweaked. It’s a game of cat and mouse: Just when we appear to have a handle on fraud, the miscreants worldwide find another way to bilk consumers and businesses.

One of the most effective fraud prevention deterrents is to set your address verification system to the best balance, so as to flag and prevent instances of fraud and chargebacks while maintaining a minimum of false declines.

Dealing with false declines is a delicate balance. As much as 34 percent of online digital goods transactions declined for suspected fraud are false positives, says research expert Javelin.

That’s 1/3 of all transactions of digital goods.

Refrain from extremes in your Address Verification System settings

There is a lesson merchants are advised to learn when deciding on address verification settings: Be patient. Be open-minded. Experiment. Don’t do anything rash.

We recently read about a merchant who, anxious to extinguish any and all instances of fraud and chargebacks, ended up hurting himself more than solving the problem. Among other superficial methods, he tweaked his address verification system to only allow transactions with an exact match on numerical addresses and zip codes.

As a result, by declining partial matches – a high majority of which were likely legitimate transactions – sales decreased while instances of false declines increased. Perhaps misguided, the merchant then disabled AVS controls in hope that sales would absorb instances of fraud and chargebacks. That didn’t work either.

What the merchant needed to do was find a happy medium – the sweet spot – somewhere in the middle. Instances of fraud are not going to cease overnight; therefore, merchants should be thinking mitigation, about seeing consistency in improving fraud levels as well as declines in false positives.

Take the time for a manual review – it can never hurt

Merchants are busy. Really busy. There are products to push, money to be made. Does anyone want to take the time to look over hundreds and thousands of transactions?

Taking the time to examine flagged transactions never hurts and will go a long way in finding that sweet spot when setting your address verification settings. Some red flags worth a pair of human eyes include:

  • Purchases of the same products in bulk: It could be a fraudster looking to score fast with a stolen credit card.
  • Bulk purchases at once, different cards: Any criminal-minded person can purchase stolen credit card information on the dark web. Those who do often purchase consumer information in batches, then look to score on a website within a short window of time. The defense against such a crime is to pay attention to the shipping address. If it is the same for all the transactions, merchants can likely rest assured a cyber criminal is looking to score.
  • Mismatches: When the buyer’s shipping address and billing address don’t match. Or, when the buyer’s IP address doesn’t match with his/her physical mailing address.
    • In these cases, it is always possible that a college student or someone in the military perhaps purchased something (away from home, using a different IP address) and is shipping the goods elsewhere as a gift.
  • Purchases coming from a different country: Certain regions in the world are rife with fraud (here at Instabill, we maintain an excluded countries database).
  • It’s the most wonderful time of the year: Credit card fraud knows no season. Since e-commerce reaches its peak from November through February due to holiday shopping and returns/exchanges, merchants are wise to pay extra attention during that span.

We’re not advocating that these transaction types all be declined; we just feel they warrant further examining.

Tell us about your address verification settings

What are the priorities in your AVS system? What are the most popular causes for a decline? Please leave a comment below.

 

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