Here's a step-by-step guide on how zip codes help prevent credit card fraud:

1. Online Purchase Initiation -

Customers who initiate an online purchase using a credit card are typically prompted to enter their billing information, including their zip code, during the checkout process.

2. Address Verification System (AVS) Check -

The entered zip code is checked against the billing address on file with the credit card issuer using the Address Verification System (AVS). This system confirms whether the zip code provided matches the one associated with the card.

3. AVS Response -

If the zip code matches, the transaction can proceed smoothly.
A mismatch between the entered zip code and the billing address on file can trigger an AVS response indicating the discrepancy.

4. Fraud Detection Algorithms Activation -

The AVS response and other transaction data trigger fake detection algorithms credit card companies, and banks use.
These algorithms analyze various factors, including the zip code, transaction location, spending patterns, and historical behaviour associated with the card.

5. Algorithm Evaluation -

The fraud detection algorithms evaluate the transaction's risk level based on the zip code match/mismatch, transaction location, and other data points.
The transaction may be flagged for manual review or additional authentication steps if the risk level is deemed high due to a mismatched zip code or other suspicious factors.

6. Manual Review or Authentication -

When a transaction is flagged as potentially fraudulent, fraud analysts may route it for manual review.
Alternatively, the customer may be prompted to provide additional verification, such as entering a one-time code mailed to their registered phone number or email, to verify their originality and authorize the transaction.

7. Transaction Outcome -

The transaction may be approved and processed after manual review or successful additional authentication.
If the transaction is confirmed as fraudulent or remains suspicious even after verification attempts, it may be declined or blocked to prevent unauthorized credit card use.

By following these steps, zip codes contribute to the overall security of credit card transactions by helping detect and prevent potential fraud attempts.

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