Credit Cards: Can AVS be checked before Authorization?

Question

This is a question about credit card processing. We are using AVS and have found that each transaction that fails because of AVS causes a hold for the total amount to be placed on the customer's card. Multiple failures mean multiple holds.

This happens because AVS is checked only after the AUTH is done. So if AVS fails, then a VOID is done. So you have an AUTH followed by a VOID which results in a hold.

Since most of our customers make very large purchases, multiple holds for this amount are a real problem. My questions for you are:

1. Can AVS be checked before an AUTH is done?

2. Does these holds happen for all merchants or just smaller ones? I've never had this happen to me and I buy stuff online frequently.

3. I've heard that you can do an AUTH/VOID of $1 to just to check the AVS. Is this a good way to handle the problem?

Any suggestions are welcome. Thank you.

Answer 1

Visa is starting to charge a "misuse of auth" fee for those $1.00 transactions and is pushing users to a $0.00 auth transaction. So a $1.00 may end up costing you more you expect.

See: http://www.braintreepaymentsolutions.com/blog/Visa-misuse-of-authorization/ and http://www.braintreepaymentsolutions.com/blog/Account-Verification-with-a-Zero-Dollar-Value-authorization-request/

I hadn't heard of a processor still holding funds for a failed AVS transaction. That doesn't seem right. Have you tried talking to your processor/gateway?

Answer 2

To answer in order:

Question 1

Generally not. You have to have a valid card before you can do AVS, and you can't know that until after you try and get funds.

Question 2

I used to deal with this all the time, and our normal payment was $200+. This is all due to the way debit cards are different than credit cards.

When a charge is processed, the processor hits the bank and asks if the funds are available (this is the AUTH step in the charge process). If they are, the funds are put on hold as a shadow charge. On a Credit Card, these are invisible to the customer and generally don't impact anything. The money isn't really there (hence a Credit Card) to begin with.

On a Debit Card with the Visa or Mastercard logo, the exact same thing happens, but since Debit Cards go directly against a cash source (the checking account), the customer sees these holds. If no date is specified on the AUTH transaction, then the bank will eventually drop these shadow charges after a few days.

The new processing rules state (at least from what Authorize.net was telling us to implement) that if a card is declined for ANY reason, be it an AVS fail, NSF, whatever, you have to immediately void it to release the funds. Funds available but the AVS fails? Void. Before I left my previous job we were about to implement this as Authorize.net customers had until May or June 2011 to get it in place.

Queston 3

Like shf301 said, $1 auths are going to be frowned upon. I would say your best bet is to just void the transaction and release the funds immediately.