This is a security system which requires merchants to provide the cardholders address in “card not present” transactions (usually phone, mail or web transactions). The merchant’s system verifies the address with the records of the cardholder’s issuing bank. This is one of the older anti-fraud measures and assumes that if someone has a stolen credit card they didn’t also steal the wallet with the cardholders address.
Many issuing banks are not actually set up to handle the AVS system or may only store the cardholder’s zip code.
However, there really isn’t an industry standard for AVS and by even attempting to use it a merchant may qualify for a lower rate on those transactions where they do. The AVS does not necessarily insure that a transaction is valid.