Out of all the online frauds, synthetic identity fraud is one of the fastest-growing threats in the U.S. Traditional methods of detection and prevention of fraud are failing when it comes to synthetic ID fraud. Synthetic identity fraud is a type of fraud where fraudsters combine fake and real information such as real stolen social security numbers and fake names to create a whole new persona. Fraudsters then use this new identity to complete a number of fraudulent activities. This new identity can affect financial institutions, government agencies, or individuals by opening a new fake account.
Synthetic identities are a growing threat in the US. This is because identity verification in the US leverages personally identifiable information (PII) like SSNs. According to a report by the FTC, synthetic identity fraud is the fastest-growing type of financial crime in the US.
One of the biggest reasons why synthetic identity fraud is growing is because it is hard to detect. Victims of these frauds are typically individuals who are less likely to access their credit information regularly, such as children or the elderly. Plus, fraudsters often nurture these identities over time, then they apply for more and more credit and build up a positive online payment history.
Synthetic identities often go years without being detected. This is one of the reasons why identity fraud is so attractive to fraudsters. Synthetic ID fraud is a fraud committed by expert fraudsters.
Traditional fraud usually involves a fraudster impersonating someone else. They will use stolen identity documents or information to commit fraud. These types of fraudsters tend to max out the credit limit as soon as possible before the victim notices the fraud. Most financial institutions send alerts to the victims about suspicious activities and that’s why this type of identity fraud is detected easily.
Synthetic ID fraud in comparison combines real stolen information and fake information to create a completely new identity. There are several ways this can be achieved:
By combining real and fake information, detecting synthetic ID fraud becomes much more difficult. Especially when the real information is stolen from those who are less likely to keep their eye on their credit files. In a lot of cases, synthetic identity fraud can go undetected for a long time.
The process usually starts on the dark web. A fraudster can easily purchase stolen PII that is obtained with data breaches or other methods. Or sometimes they’ll use a completely fake identity for fraud.
Using the new synthetic identity, a fraudster applies for credit online. The financial institution the fraudsters apply to send their query to the bureaus for checking. This initial application is often as the new synthetic identity doesn’t have a credit history. Although, the application is enough to start a new credit record.
The fraudsters keep on applying at various financial institutions until they’re approved by anyone. Most of the time, it’s a high-risk lender who approves. They continue to build this line of credit making timely repayments and building up a good credit reputation. With a good enough credit history, fraudsters can gain access to lower-risk lenders and higher credit limits. Building this reputation takes up months or even years and on paper, fraudsters look like any other credit users.
Some fraudsters accelerate their credit history process by piggybacking. Fraudsters are added as authorized users to an account with a good credit history. Authorized users are compensated for this process. The fraudsters will use several tactics to make the synthetic identities even more real. Thus making it harder to detect with traditional methods.
Eventually, the fraudsters will take advantage of the reputation they’ve built up over time. Once they secure a large line of credit, they will max out the credit line before vanishing forever. It’s also possible for the fraudsters to double their profits by claiming identity theft on their accounts and get the charges removed. Or they can even use fake cheques to pay off the balance before maxing out the credit limit.
Due to its hard to detect nature, there’s no way to tell how this type of fraud impacts businesses. In the US, lost credit-card accounts lost $820 million to synthetic identity fraud in 2018 and the losses are expected to cross $2 billion by the end of 2021. However, this data doesn’t account for the loss of personal time and aggravation for the victims.
Synthetic identity fraud is costing businesses billions of dollars. Plus the amount of time financial institutions spends chasing down people who don’t exist. Clearly, synthetic ID fraud is a growing threat, so businesses need a more efficient process to verify if the users are authentic or not. Traditional tools that are meant to reduce identity fraud can’t keep up with synthetic identity fraud.
Businesses need to invest in the latest and more sophisticated methods like DIRO’s original document verification technology. It verifies documents instantly and verifies customer data from original sources to reduce the use of fake and stolen information.