What is Synthetic Identity Fraud?

Fraudsters are constantly devising new ways to exploit businesses, with synthetic identity fraud emerging as one of the most sophisticated and costly techniques. Unlike traditional identity theft, this method involves creating entirely fictitious personas using a mix of real and fake data. The increasing prevalence of personal data breaches, the accessibility of advanced technology, and the shift to remote processes have created fertile ground for this type of fraud to flourish.

Synthetic identity fraud is more than a growing concern; it��ɫ��Ƭ�s a multibillion-dollar problem. Analysts from KPMG have estimated the financial damage at $6 billion, while projections suggest even more staggering losses in the years ahead. This article explores the complexities of synthetic identity fraud, its costs, and actionable strategies to combat it, ensuring businesses are better equipped to defend against this modern threat.

What is synthetic identity fraud?

involves creating a false identity by combining real and fake information to deceive businesses and access goods or services. Scammers often use data stolen from real individuals��ɫ��Ƭ�such as names, addresses, or Social Security Numbers (SSNs)��ɫ��Ƭ�and blend it with fabricated information, including AI-generated demographics.

For example, fraudsters might create a ��ɫ��Ƭ�Frankenstein��ɫ��Ƭ� identity with one genuine component, like an SSN, while other data, such as names or photos, are entirely synthetic.

How does synthetic identity theft work?

Synthetic identity theft begins with the acquisition of personal data, often obtained through phishing, data breaches, or purchased from dark web marketplaces. Fraudsters then use this data as the foundation for building a synthetic identity.

Here��ɫ��Ƭ�s how it typically works:

Acquiring genuine components: A key piece of real information, such as an SSN, is obtained to add legitimacy to the synthetic identity.
Blending with fake data: Fraudsters combine the real information with fabricated details, like fake names, addresses, or photos.
Creating credibility: The synthetic identity is used to open bank accounts or apply for loans. Fraudsters might even build a credit history to make the identity appear more credible over time.
Exploiting the system: Once the synthetic identity gains trust, fraudsters extract as much value as possible��ɫ��Ƭ�often through loans or credit��ɫ��Ƭ�before abandoning the account.

Synthetic vs. traditional identity theft

While both types of fraud involve stealing personal information, synthetic identity theft differs significantly from traditional identity theft:

Traditional identity theft uses a real person��ɫ��Ƭ�s complete identity to make fraudulent transactions or open accounts in their name.
Synthetic identity theft creates a fictitious identity by combining real and fake data, with no direct victim to discover or report the fraud immediately.

Traditional identity theft typically leads to immediate disruptions for the victim, such as unauthorized charges or credit score damage. In contrast, synthetic identity theft can go undetected for months or even years, as no single individual directly suffers the impact.

How much does synthetic identity theft cost your business?

Synthetic identity theft has a significant financial impact on businesses, particularly in the financial and digital sectors.

High individual costs: The Federal Reserve estimates that the average charge-off balance for synthetic identity fraud is $15,000 per case.
Cumulative losses: Synthetic identity fraud is projected to result in $23 billion in losses globally by 2030, fueled by the increasing reliance on noncash payments.
Industry-specific impacts:

○ Banking: Over 90% of banking institutions recognize synthetic identity fraud as a serious threat, with some facing losses in the hundreds of thousands of dollars.

○ Digital platforms: Around 21% of companies report synthetic identity fraud in unauthorized purchases and transactions, particularly in e-commerce and services.

How to detect synthetic identity fraud?

Detecting synthetic identity fraud requires businesses to adopt advanced tools and processes to scrutinize customer identities. Here are key steps:

Enhance identity verification:

○ Use fraud detection software to validate the authenticity of identity documents.

○ Verify that the applicant matches the provided identity through biometric checks, such as face matching and liveness detection.

○ Cross-check passive fraud signals, like mismatches between the applicant��ɫ��Ƭ�s IP address and stated location.

Leverage government data:

○ In regions like the US, tools like the Social Security Number Verification Service (SSNVS) can validate SSNs against official records.

Implement advanced security policies:

○ Adopt multi-factor authentication (MFA) and role-based access controls.

○ Consider a zero-trust security model that assumes all incoming traffic is potentially malicious, requiring strict verification at all access points.

Educate employees and customers:

○ Train staff to monitor and flag suspicious accounts early.

○ Run educational campaigns to inform customers about synthetic identity fraud and encourage compliance with robust identity verification processes.

Conclusion

Synthetic identity fraud is a complex, ever-evolving threat that requires to adopt a multi-layered approach to security. From leveraging advanced identity verification processes to implementing robust security policies and educating employees and customers, proactive measures are essential to combating this type of fraud.

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