Merchant Services
Card Verification Procedures

A Primer on Card Verification Procedures

Despite efforts by major credit card processors and financial institutions to stem the tide of losses, credit card fraud remains a serious problem - not only in the U.S., but all over the world. Worldwide losses attributed to credit card fraud now top $5.5 billion, and 40 percent of all financial fraud is credit card related, according to the U.S. Department of Justice.╣

Two measures that have been adopted by the payments industry to help combat credit card fraud are Card Verification Value and the Address Verification System, or CVV and AVS, respectively. While these anti-fraud measures have been in place for some time, there is often still some confusion among merchants when it comes to how and when each measure is used. Following is a brief primer on CVV and AVS to help clear up the confusion.

CVV: Two Different Types
There are two different types of CVV codes - they are commonly referred to as CVV1 and CVV2. CVV1, which is embedded in a card's magnetic stripe, is used for card-present transactions to verify that the data stored on a card is valid and that the card was actually issued by a bank.

CVV2 is the more recognized CVV code. This is the three-digit security code that's printed on the back of Visa and MasterCard credit and debit cards, or the four-digit code printed on the front of American Express cards. This code is used with card-not-present transactions that occur online or via mail order/telephone order (MOTO) to verify that the customer presenting the card is the rightful cardholder and has the card in his or her possession.

Both types of CVV codes can help reduce credit card fraud dramatically, thus helping merchants avoid potential retrievals and reduce chargeback fees. When used properly, the codes can help stop breached or fraudulent transactions from being processed. And since regulations prohibit merchants from storing CVV2 codes in their databases, consumers don't have to worry about providing the codes to merchants, since card numbers (if lost in a security breach) would be much less useful to thieves without them.

AVS: Matching Cardholder Address Information
The Address Verification System, meanwhile, is designed to help detect fraudulent credit card activity primarily with card-not-present transactions by verifying that the address information entered by the customer presenting the card matches the bank's customer address information. AVS is supported by Visa«, MasterCard«, Discover« and American Express«.

To use AVS, merchants must ask customers for their billing ZIP code and house or apartment number at checkout (but not their street name, city or state). The merchant will then receive a code with an authorization result based on the level of accuracy of the address match. In addition to helping reduce fraud, using AVS also enables merchants to secure the most favorable interchange rate.

Unfortunately, there are no 100 percent, fool-proof solutions to stopping credit card fraud - especially when fraud occurs with online, MOTO and other card-not-present transactions. But using CVV and AVS together provides the highest possible level of fraud protection and leads to a secure, verified transaction in the vast majority of transactions.


1 Credit Card Fraud Statistics.

Visa is a registered trademark of Visa International in the United States and other counties; MasterCard is a registered trademark of MasterCard International, Inc.; Amercian Express is a registered trademark of American Express Marketing & Development Corp. in the United States and other countries; Discover is a registered trademark of DFS Services, LLC.
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