Synthetic identity fraud, often referred to as synthetic identity theft, involves combining fake credentials with a suggested identity that isn’t connected to a real person. In order to build a new identity, thieves may use actual and fraudulent information, such as names, social security numbers (SSNs), and fraudulent personally identifying information (PII), to construct fake identities. By opening fictitious accounts and making fraudulent purchases, this new identity is used to defraud financial institutions, governmental organisations, or private citizens.
Synthetic Versus Traditional Theft
With traditional identity theft, a fraudster usually steals a person’s whole real identity before quickly maxing out their credit cards or committing some other quick theft to get as much as they can before the victim notices. In other words, they are pretending to be someone else, which will immediately attract the notice of victims and law enforcement. Synthetic identity theft is when different pieces of information are used to create a fake person’s identity. It gets considerably more challenging to find this information.
Methods Used to Create Synthetic Identities
There are a few methods that fraudsters use to exploit synthetic identity fraud:
- Combining real and fake information: Fraudsters might use a real Social Security number (SSN) but link it to fake names and addresses to create synthetic identities that can be used to access credit.
- Stealing the identities of children: Because children have no credit history, fraudsters can use their social security numbers to create synthetic identities that can be used for credit applications. Often, this type of fraud is not detected until the child is old enough to start building credit on their own.
- Using stolen identities: Fraudsters might use real identities that have been stolen from data breaches to create synthetic identities that can be used for credit applications.
Synthetic identity fraud is a costly issue for financial institutions and consumers alike. Furthermore, it can cause disproportionate harm to individuals with lower credit scores or who are just starting to build a credit history.
Dangers of Synthetic Identity Fraud
Synthetic fraud is more dangerous than third-party fraud, which is when a full identity is stolen and used to trick businesses and consumers. In third-party fraud, a full identity is stolen and used to trick businesses and consumers. Consumer victims are an important way to find and stop fraud, and when there isn’t a clear victim, businesses have to deal with two problems.
Fraudsters can use fake identities to keep accounts open for months or years, gaining credit line increases and improving their credit standing, only to eventually max out their credit limit and vanish without a trace if a customer doesn’t notify a company of fraudulent activity during the account’s life.
Since there is no clear sign of fraud, synthetic frauds are often labelled as bad credits once the account has been charged off. This makes it challenging for businesses to recognise a synthetic fraud issue and even more challenging to determine whether additional protections are working.
Also, different businesses have different ideas about what a fake identity is and even whether this is a fraud or credit problem. The lenders and service providers who are left to bear the costs of what can be high-frequency and high-dollar losses are the genuine victims of synthetic identity theft.
Preventing Synthetic Identity Fraud
It can be hard to stop synthetic identity fraud because it usually involves a mix of real and fake information. However, there are some steps that individuals and businesses can take to reduce the risk of this type of fraud:
- Check your credit report regularly. This will help you find any strange activity, like new credit applications or accounts that you didn’t open.
- Businesses can get better at verifying people’s identities by using more than one method, such as checking social security numbers, calling and emailing people to make sure they are who they say they are, and using biometric data.
- People should be careful about sharing personal information, especially on social media and other online platforms. Fraudsters can use this information to create synthetic identities.
- Businesses should teach their employees about synthetic identity fraud and give them training on how to spot and stop this kind of fraud.
Detecting Synthetic Identity Fraud
Synthetic identity fraud can be discovered in a variety of ways. A fundamental one entails using ML (machine learning) and AI (artificial intelligence) to recognise anomalies in customer behaviour patterns. Additionally, it is important to validate the social security numbers and bank verification numbers (BVNs) used to create new accounts.
The first step in preventing fraud is also confirming the names of the customers. A synthetic identity that combines a valid SSN with false information can evade a credit bureau check, but it is less likely to do so with a document check.
If document verification is used, the fraudster will have to show a fake identity paper. They won’t own a real identity document that corresponds to the fake identity. Data consistency checks, picture analysis, and the detection of font irregularities are just a few of the techniques used to spot fake papers.
The fight against synthetic identity fraud goes beyond just financial institutions. Credit bureaus should work with consumer advocacy groups to better educate consumers on how to protect their identities and the most effective measures they can take to safeguard themselves against fraud.
Conclusion
Synthetic identity fraud is a problem that is growing in sophistication, intensity, and frequency. It is a threat to the financial industry and requires a coordinated effort by both financial institutions and consumers to combat it. By employing the right technological tools, educating consumers, and working together, we can overcome and beat this fraud.
Written by: Elegbede Aisha, CFE