Since the Covid-19 pandemic, the world has seen a massive outpouring in the e-commerce business. In 2020, the accelerated growth in digitisation led to a 25% growth of e-commerce. The total sales reached $4.28 trillion and by the end of 2021, are forecasted to reach $4.92 trillion.
With the evident increase in the e-commerce business, the likelihood of online fraud has also escalated. Most of the scams happen by providing the wrong addresses. Often there are clerical mistakes in entering addresses e.g, spelling mistakes or incomplete addresses.
But in other cases, fraudsters knowingly provide invalid addresses, which can result in chargebacks. Chargeback frauds have accounted for $19billion in financial losses for merchants. Around 58% of the companies have reported an increase in chargeback frauds in 2020.
So the question here arises, what are chargeback frauds, and how address verification can prevent them.
What are Chargebacks?
Chargeback is a mechanism to protect customers from losing money to unintended online purchases by reversing the transaction. The customer has the right to dispute the transaction against any unfamiliar activity.
If they get the money back from the cardholder, it is called a chargeback.
Also, if customers receive damaged items or the package did not reach the address they provided, they can file a dispute with the credit card issuer. The card issuer then demands that merchants pay for the loss of the customer.
Invalid Addresses Resulting in Chargeback Fraud
Chargeback policy aims to protect the money of customers and gain their confidence in e-commerce. However, it has made it easy for fraudsters to trick the system. They enter the wrong address while purchasing an item online. When the item is delivered to that address and successfully received, they file a dispute with the card issuer, claiming that the package never arrived.
Card issuer reaches out to the merchant and demands a reimbursement. Even if the merchants can provide proof of the customer's fraudulent intent, this process wastes significant time and results in financial losses. This problem demands an effective solution to verify addresses properly. Merchants/ retailers need to be proactive and authenticate the addresses in real-time during the purchasing stage.
Address Verification Solution (AVS)
The Address verification solution is a digital method of validating addresses in real-time. The modern AVS solutions are using artificial intelligence to verify addresses. They detect false information in the billing address. By doing this, AVS ensures the legitimacy of users and helps in the prevention of fraud.
How does Address Verification Solution Work?
With the integration of Artificial Intelligence, verifying addresses has become automated. The main idea is to double-check the billing address entered by the user during purchase, with the one associated with official documents. These documents e.g government-issued ID cards, driving licenses, passports etc. contain authentic addresses.
Verifying the address entered by the user against this data confirms the authenticity of the address.
Digital Address Verification involves the following steps:
- The user enters the billing address.
- AVS asks the user to upload a picture of the address document.
- Using OCR technology, AVS extracts the data from the documents with high accuracy
- The extracted data is matched with the address provided by the user.
- Upon a successful match, the user's address is verified, else the user can not proceed with the transaction.
Can an Address Verification Solution (AVS) prevent Chargeback Fraud?
Although the way AVS works sounds simple, it is highly effective in dealing with chargeback frauds. The fraudster can not proceed with entering a fake address.
If the address provided by the customer does not match with the address extracted from the authentic ID documents, the AVS solution generates an error message and denies further access. The only way to proceed with the purchase is to provide an original address through authentic documents.
Limitations and Criticism
AVS works well to stop fraudsters from entering fake billing addresses during online purchasing. They must provide authentic ID documents to advance. However, forged documents with wrong addresses can fool the system. This calls for a more robust solution for the verification of addresses.
In this case, AVS should collaborate with the regulatory authorities to access the government databases to double-check any document that seems forged. Some AVS solutions also store the results during the verification process so that their in-house team can manually authenticate the documents.
It can be argued that in some-situations human intervention is needed and we can not solely rely on AI. Nevertheless, AI-based AVS provides an added layer of security and can turn into a headache for fraudsters. Although not perfect, these digital solutions can significantly reduce chargeback frauds.
Conclusion
Summing it up, the rise of e-commerce has increased online scams. Chargeback frauds have also surged high, leaving merchants with no option but to seek help from automated address verification solutions. Address verification solution verifies addresses by using Artificial Intelligence. A person has to take real-time pictures of government-issued id-documents e.g id-cards, driving licenses, etc. The AVS solution then checks whether the address entered by the customer matches the address extracted from the document or not.
AVS is a fast and efficient technique to prevent online scams in e-commerce. There are certain limitations to AVS, nonetheless, they can prevent chargeback frauds to a great extent.