Address Verification

Address verification can be a useful security measure in order to prevent fraud on the Internet. It means that the shipping address of the customer is compared to the billing address of the credit card statement. If the address verification is not successful, the order is flagged. For example, the merchant can then call the customer in order to manually confirm that the order is not fraudulent.

With online credit card transactions, the merchant often doesn’t have proof that a transaction has been placed, because it is impossible for a customer to sign the order slip online. For this reason, the risk is generally on the merchant’s side. If the customer charges back the credit card, then the merchant loses out. Address verification can be useful in order to reduce the number of chargebacks.

On the other hand, address verification can have some drawbacks. For example, if the customer doesn’t type in the address in exactly the same format, or with the exactly right spelling, then the address verification will fail. This often results in a large rejection rate of orders that may be genuine. Whether a merchant should use measures such as address verification largely depends on the fraud rate that is encountered. If the fraud rate is very low, it may not be worthwhile to use address verification. The merchant can simply tolerate a low fraud rate and build the cost into regular prices. On the other hand, if the fraud rate is very high, then the merchant will have no other options than to deploy address verification and other security techniques.