Using Billing and Shipping Address Mismatch as Fraud Detection

Sydney VaccaroFraud PreventionLeave a Comment

Using Billing and Shipping Address Mismatch as Fraud Detection
The mismatch of billing and shipping addresses is commonly used by merchants as an indication of fraud.

Fraud prevention should be a priority for all merchants. By putting into place preventive measures, merchants can help retain hard-earned revenue and prevent fees caused by true fraud disputes. One of the routine checks that merchants make when verifying a purchase is to check if the billing and shipping addresses match for online orders. We will take a deeper dive into the pros and cons of relying on this method to validate purchases.

Billing and Shipping Address Mismatch

One data point that is commonly used by merchants to assess if a purchase is fraudulent or valid is if the billing and shipping addresses match. Merchants check for this because a mismatch of the two addresses could mean that there is a true fraudster attempting to purchase on the site with stolen credit card credentials. On the other hand, it may be an honest customer just trying to make a purchase.

There are some valid reasons an order may come in with a mismatched billing and shipping addresses. The cardholder may be sending a gift to a family member or a friend. The cardholder may have two homes or is currently on vacation. Or the cardholder may have just moved and has not switched over their billing address yet.

If merchants approve or reject purchases based on the shipping and billing address alone, it will protect them from true fraud attempts but may cost them in rejected revenue. You may be asking, is there a better way? For merchants that do not want to dismiss a customer based on mismatched address but still want to prevent fraudsters, it requires a manual review and possibly a third party resource. By using address verification services, purchase history, and issuing bank’s records, merchants can validate the address. Or if all else fails, merchants can call the cardholder to confirm the shipping address themselves. This process may take a little more time and effort, but you can be sure you are not rejecting valid purchases and maintain good customer relationships.

What is AVS?

A similar checking process to the matching of billing and shipping addresses is AVS. Address Verification Services or AVS is a commonly used fraud prevention tool that matches the billing address of the purchaser against the address that the card issuer has on file. The goal is to validate that the person making the purchase is the true card holder.

How Does AVS Work?

At checkout, customers are asked to provide both their shipping and billing addresses. When they do this, the merchant’s gateway sends the billing address to the card network, who then passes it along to the issuing bank. The issuing bank checks if the address provided matches the one they have on file and sends an AVS code based on the results. The comparison is made by checking the numbers in the address provided. AVS only compared numbers which means that if a customer has a billing address of “1234 Street Name Ave, Some City ST 87654” the AVS will only compare “1234” and “87654” to check the address. The comparison of those numbers will result in an AVS code telling the merchant how successful the match was. Just like reason codes, the different card networks have specific codes for AVS responses. Some are unique to a network, but some overlap.

Preventing True Fraud

When merchants put in place fraud filtering or manual views like checking for matching billing and shipping addresses, the goal is to avoid true fraud. True fraud, also known as identity theft, begins with an acceptance of a stolen card. The actual cardholder disputes the fraudulent purchase. As a result, the card account is closed, and a new account number and card are issued to the genuine cardholder. The key for merchants is to find a balance between having too many false positives (marking the purchase as a fraudulent attempt, when it is a legitimate purchase) and keeping out the true fraudsters. Being aware of which fraud checks are best for your business is a critical analysis for merchants.

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