In this video we offered some clarification on statements made in the previous video regarding interchange pricing and downgrades when a transaction fails the AVS. If the account is structured as a MOTO (mail order telephone order) or e-commerce account, you will not get an interchange downgrade if the billing address is wrong. However, you will be liable for a chargeback if the billing address is incorrect or the billing address is correct but you ship the goods to a different address other than the billing address and the transaction turns out to be fraudulent. This happens often when fraudsters know the cardholders billing address and enter it correctly, but have the good shipped to them directly or to a freight forwarding service.


Ladies and gentlemen, boys and girls, it’s your boy, Jaron Rice, founder and CEO of Magothy Payments. I came back to do a part two for the merchant services account structure video that we just posted to offer a little bit more clarification.

There was something that I said in regard to your account structure. If you have a MOTO account (mail order telephone order) and you punch in the address for the AVS system (address verification system), and that information is wrong, you are not penalized by the card brands with a downgraded interchange cost. That is true.

However, if it’s an eCommerce transaction, whether you’re structured for MOTO or eCommerce and the person puts in their information and it happens to be wrong, it fails the address verification service, and you still ship those goods, there’s a possibility that you’re going to be liable for a charge right down the road if that turns out to be a fraudulent transaction.

When it comes to eCommerce and selling of goods, if someone comes to your website and puts in payment information, you should have a setting to protect you in the event that the address verification fails.

I mentioned before that gateway settings allow you to tinker them so that if you’re keying it in yourself and you got their information over the phone and the AVS fails, that the transaction goes through. But if it’s passively set up on your end so that they’re the ones doing the work and punching in the information, you may want to have it set in a way that it’ll decline if the AVS fails so that you’re not liable for a chargeback because the burden of proof is on you. If have it set up and it’s a fraudulent transaction and they don’t know the person’s correct billing address, you need to have something in place to stop that transaction from going through.

The same is true if they know the billing address. They put the billing address in and the billing address passes the AVS system, meaning it’s accurate, but they have a different shipping address. So that get’s a little wonky because we’ve had clients that have had that happen to them where someone will put in the billing address, which is correct to the cardholder. They’ll put in the shipping address which is different. The shipping address is either a fraudulent address or a freight-forwarding service where the transaction goes through, the goods are shipped to that address, it gets to a freight-forwarding service, and then it’s forwarded somewhere else where they have no record of it. And the only way you can figure out where a freight-forwarding is going is with a court order. When it turns out that was a fraudulent transaction, the merchant is liable to pay back the actual cardholder, and they’ve lost those goods that they shipped.

To again clarify on that, if the AVS information is wrong, you’re not going to get hit with additional interchange downgrades if your account is set up properly, but it will leave you open for a chargeback down the road if it turns out to be a fraudulent transaction. So depending on how you’re set up, you definitely want to consider that.

I hope that information was helpful. If you’d like some more information or want to reach out to us, you can always give us a call at 855-MAGOTHY. That’s 855-624-6849 or visit us at I hope you enjoyed the information. Catch you guys in the next one.

Similar Posts