When people use their credit cards to pay for items, the machine, or merchant, will request the zip code of the cardholder. That may happen during an online checkout process, at a point of service purchase, or even at the gas pump. The request strikes some people as peculiar because they have no idea what the zip code has to do with a credit card purchase. So, what exactly is the credit card zip code connection?
The Short Answer:
The short answer to the question is security reasons. The connection is utilized in an Address Verification System (AVS) that is designed to protect the cardholder, the merchant, and the credit card company. The zip code information and the transaction information are processed at the same time. If the zip code does not match the current system information for that credit card, the merchant is immediately alerted. The card may be stolen, used for fraudulent purposes, or reported lost by the original cardholder.
Merchants can then take steps to make sure the credit card does belong to the person making the purchase. They can ask to see identification, call the credit card company, or refuse the sale. Machines can be programmed to reject the card, or to alert business owners that there may be a problem. If the card is stolen, it may have been transported to another location before anyone attempts to use it. That person may not be familiar with the correct zip code, and will enter one that is incorrect.
The Longer Answer:
The credit card zip code connection, or AVS, is only one of several security options available to merchants who accept credit card payments. The industry offers other security products that merchants can select to protect themselves and their customers. Credit card fraud is expensive for everyone involved. Merchants may loss the cost of items when a stolen credit card is used. The credit card company may suffer losses if it has a program that covers the cost of fraudulent purchases. The cardholder may have confidential information compromised, be the victim of identity theft, and have to pay for expensive purchases.
Other security measures can include Point-to-Point Encryption (P2PE) and Tokenization. The P2PE system encrypts confidential information as soon as a credit or debit card is swiped. That protects sensitive information that belongs to the business and to the cardholder. Tokenization protects stored credit card data by using coded reference pointers, or tokens. This system is primarily used for online purchases, and point of service transactions.
Whichever system is selected by the merchant, the purpose to increased security to protect themselves, as well as their customers from fraud. Responding to requests for additional information, such as a zip code or a telephone number, may seem like a hassle or a waste of time, but it is actually for cardholders protection. Merchants and credit card companies want to increase efficiency and service, but also want to protect their interests. Credit card fraud hurts all involved, and can be quite expensive. Those costs are reflected in pricing for items and interest rates charged by companies, so security measures help keep overall costs down. It may take another minute at the checkout, but is saving customers money for the long term.