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Validation Code What it is How it Works Example

Validation Code What it is How it Works Example

Validation Code: What it is, How it Works, Example

What Is a Validation Code?

A validation code—also known as a CVV, CV2, or CVV2 code—is a series of three or four numbers located on the front or back of a credit card. It provides an additional layer of security for online or phone credit card transactions.

Most credit card issuers place validation codes on the back of the card, on the far-right side of the signature panel. American Express (AXP) cards, however, have the validation code printed on the front.

Key Takeaways

– A validation code is a security measure to reduce credit card fraud.

– It consists of a three or four-letter code printed on a credit card.

– Credit card fraud reached nearly $29 billion in 2019 and is projected to rise to around $38 billion by 2027, with the United States accounting for almost 34% of reported losses.

How Validation Codes Work

As online shopping grows, the threat of identity theft and credit card fraud increases. Validation codes are used to mitigate this risk during credit card purchases.

In a typical transaction, customers provide their name, billing address, card number, expiration date, and validation code. While some details could be obtained from other sources, the card number, expiration date, and validation code can only be obtained from the card itself. The validation code is usually printed on the back of the card to make it more difficult for thieves to gather all the required information from a single photograph.

To process the credit card transaction and verify the user’s identity, the entered CVV is compared against the card number.

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To enhance security further, merchants are prohibited from storing customers’ validation codes after a purchase. However, some unscrupulous sellers may illegally record this information. Additional protection is provided by personal identification numbers (PINs) that cardholders must enter when using point-of-sale (POS) terminals.

Real-World Example of a Validation Code

While security measures like the validation code make identity theft and fraudulent purchases more difficult, they may not deter determined thieves. Credit card fraud cases surpassed 393,207 in 2020, with the United States being the most affected country, accounting for nearly 34% of global cases.

Merchants are not allowed to store card security codes after a purchase, providing extra protection against credit card theft. However, validation codes can still be stolen, and cardholders should safeguard their validation code just as they protect the card number and expiration date. Thieves can make fraudulent transactions with someone else’s card using the validation code.

If a stolen card is used, the cardholder’s liability is limited to $50 under the Fair Credit Billing Act (FCBA), depending on when the theft is reported. Customers who discover a missing card or detect suspicious or unauthorized activity should immediately contact their credit card issuer to report the problem and notify them about possible fraud. The issuer can then cancel or deactivate the card.

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