Cybercriminals are increasingly leveraging new identities, created with stolen or fabricated data. Called synthetic identity fraud, it’s the fastest-growing financial crime in the U.S., accounting for about 85% of all fraud globally.
According to Deloitte research, synthetic identity fraud losses are expected to reach at least $23 billion by 2030.
What is Synthetic Identity Fraud?
Let’s start with a synthetic identity fraud definition: Synthetic identity fraud occurs when fraudsters create new, fictitious identities by combining real and fake personal information. Unlike traditional identity theft, which involves stealing a person’s identity, synthetic identity fraud often uses a combination of valid social security numbers (SSNs) with fabricated names, dates of birth, and addresses to appear legitimate.
By mixing real and fake personally identifiable information (PII) to establish a false identity, cybercriminals hope to bypass security solutions. Today’s generatIve AI tools and fraud-as-a-service solutions make it all too easy for fraudsters to create synthetic identities and give them extensive online profiles. All of this can be automated and done at scale.
Over time, these fraudulent identities are used to open accounts and exploit financial institutions and businesses by getting credit with no intention of ever paying it back.
It’s a nefarious practice. Cybercriminals often build these profiles over time, starting small to build credit scores.
When these fake identities hit your books or onboarding, they can look real and be difficult to identify.
The Impact of Synthetic Identity Fraud on Banks and Lenders
The financial industry and businesses that extend credit are particularly vulnerable to synthetic identity fraud due to their reliance on digital transactions and remote onboarding. The consequences of failing to detect synthetic identities early include:
- Financial losses: Fraudsters can build strong credit profiles before maxing out credit lines and disappearing.
- Regulatory risks: Financial institutions must comply with anti-fraud regulations, and failure to do so can lead to penalties.
- Reputational damage: Customers lose trust in institutions that fail to prevent fraud, impacting brand integrity.
Detecting and Preventing Synthetic Identity Fraud
Once fraudsters are in your system and gain approval, they’re inside your tent, and that’s when damage happens. Understanding the synthetic identity fraud definition is just the first step. The real challenge is identifying fraudulent identities before you book new accounts, approve loans, or extend credit.
For regulated industries such as banks and financial services, Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations make identity verification mission critical for compliance. For other businesses, such practices are crucial to detect and prevent fraud.
Cross Checking Data
Your first step is to cross-check social security numbers with government databases like SSA records to ensure they match real people. Then, cross-reference known PII such as addresses, phone numbers, and emails against multiple data sources, looking for inconsistencies.
Leveraging Behavioral and Biometric Analysis
Behavioral and biometric analysis, such as facial recording, liveness detection, and detecting non-human behaviors, can operate in real time to help identify potential fraud.
For example, behavioral biometrics can evaluate a user’s app navigation, touchscreen behavior, typing habits, or mouse movements to look for patterns that do not match human movements.
Employing Best Practices
Employing a few best practices can make a big difference in protecting you from fraud. For example:
- Leverage AI and machine learning: Advanced fraud detection systems can analyze vast amounts of data to identify unusual identity patterns.
- Require multi-layered identity verification: Use document authentication, biometric verification, and knowledge-based authentication to enhance security.
- Monitor credit bureau reports: Look for fragmented or mismatched identity records that indicate possible synthetic profiles.
- Analyze digital footprints: Check for suspicious patterns in email, IP addresses, and device usage that may indicate fraudulent activity.
This layered approach provides multiple stop points where potential fraud can be detected. While you need to leverage automation for screening, you also need human review to prevent false positives or synthetic fraud that still manages to slip through.
Go Beyond Onboarding
Onboarding is your first line of defense, but once cybercriminals get access to your systems, they can apply for loans or credit or launch account takeovers. You need a consistent approach at onboarding and throughout the customer lifecycle.
Adopting a zero-trust security framework should be SOP, requiring all users to be authenticated, authorized, and validated when granted access to your systems. This includes multi-factor authentication, application-level approvals, and strong identity and access management (IAM).
Take Action to Prevent Synthetic Identity Fraud
So, what is synthetic identity fraud? It’s a serious cybercrime that can create significant damage to your business.
If you haven’t fallen victim yet, count yourself lucky. But you can’t depend on luck to protect you in the future. Get in touch with the experts at Command Credit today to discuss proven solutions to prevent synthetic identity fraud.