The "Fast Lane" Answer
It's easy to explain the difference between AVS and address validation. AVS (Address Verification System) is designed to prevent credit card fraud. During a purchase, it ensures the billing address of a credit card matches the one on file at the card company. Address validation ensures that mail can be delivered to a postal address by comparing it against an authoritative directory (like the USPS). Both involve checking an address against a database; however the former doesn't care about where the package goes to, and the latter doesn't care about where the money comes from.
The hard part here is the why of our explanation. We have to distinguish these two services from each other because of how frequently they get confused, and since they serve wildly different purposes, it's good to know which of the two you actually need.
Confusion here comes by way of etymology (not to be confused with entomology); address validation is often called address verification, which is easily mistaken for Address Verification System (AVS). These double-dipping name shenanigans often make it difficult to separate the service you need from the one you don't. And as similar as these two systems are, they don't replace each other. AVS won't tell you if a mailing address is real, and address validation doesn't prevent fraudulent credit card use. It's just not their job.
Below we go into greater detail about how AVS and address validation work, in case you've been thoroughly riveted by this topic.
The "Scenic Route" Answer
Back when people started ordering products over the phone, companies decided they needed a system to double-check the identity of the person using the card at the other end of the line. That's how the AVS got its start. Its whole purpose is to add a level of security to the process of purchasing something with a card. We don't really purchase things over the phone anymore, but electronic purchases made AVS all the more relevant. It's just integrated and automated now.
When a customer goes to make a purchase online, they're brought to the merchant portal, which is an AVS API . That portal requires the billing address from the customer, along with the card number and applicable security details. It then communicates with AVS to check the card's database. If the information provided by the customer matches, the transaction goes through. If not, the card is rejected.
It's important to note a few of the limitations AVS operates under. First, as mentioned above, it doesn't validate addresses. Address validation involves comparing an address against a database of real, active addresses. Because credit card companies don't necessarily validate addresses when someone initially sets up a credit card, they may have addresses on file that are incorrect or, worse yet, fake. In this event, even if the billing address provided during a transaction matches what's on file, it's still as invalid of an address as it was before.
What's more, AVS doesn't even check the whole address. Let's say, for example, the billing address entered during a purchase is
2311 N 4A, Los Robles Avenue, Pasadena, California 91104. When AVS processes it, it only submits the
2311 and the
91104 of the address. Only the numerical portions of any address are ever processed. That means any address entered, as long as the numbers match, still passes the AVS test. Not checking the whole address means there's no way to validate it, and it leaves the door open for potential fraud.
That's not to say it's useless; while AVS is not a foolproof stopgap against fraud, it does provide a firewall of sorts, forcing would-be criminals to either hop the hurdle or pack it up and go home. And having protection against fraud, limited as it might be, is still better than nothing.
Address validation is the electronic equivalent of stopping the postman and asking, "Hey, is this a real address?" It involves taking an address and comparing it against a reliable, authoritative database (for US addresses, that's the USPS). In order to validate an address, it has to be standardized first, something that could be compared to tidying up your room prior to vacuuming it. Before an address is validated, an address validator will clean it up and make sure it meets the standards for the database that it will be compared against.
Once an address matches the format of the applicable database, the comparison is made, and then the address—all cleaned up—is returned to the customer with a "yes/no" approval answer. If it matches an active address listed in the database, it validates, and the inquirer is given the thumbs up. If not, they're notified that there's no match and that mail addressed to the location will simply be returned to sender.
Different providers dress it up from there, providing additional functions or information that might be interesting or applicable to the inquiring party—things like geocodes, batch processing, API support, and so forth.
Like AVS, address validation checks an address against a database; unlike AVS, address validation checks the whole address. AVS is only looking for enough information to verify the cardholder's identity, whereas address validation needs to know if mail carriers will deliver a letter or package to an address. There's no way to determine if an address is real without checking for an exact match in an authoritative database.
That level of specificity means that some otherwise viable addresses may come up as invalid. For example, if a home or office is currently unoccupied, even if mail has been received there in the past—or if mail is delivered to a P.O. Box rather than at the address directly—the address will be flagged as "invalid." This, of course, marks the difference between validation and mapping services like Google: Google can show you where the location should be if it were real, even if there's no valid mailing address tied to it. On the flipside, Google, like AVS, doesn't tell you if the address is real. Only address validation does that.
In the End...
The separation between AVS and address validation is fundamentally one of purpose. One checks the identity and authority of a credit card user, by making them prove they know the credit card's billing address. The other checks if someone on the other end of a mailing address is signed up to receive mail. Both serve a function—a company might need AVS for customers as they pay for products to be shipped, then need address validation to make sure customer's package will go to a real address.The important detail is knowing the difference between the two so that you know which one you need.