Fraudsters have been forging credit cards, stealing credit card information, and impersonating others for as long as these financial utilities have existed. In today’s digital world where little in-person commerce is conducted, the bad guys are turning to synthetic identity scams to exploit systems. The Federal Trade Commission cites synthetic identity fraud as the fastest-growing type of fraud, comprising 80-85% of all identity fraud cases in the US.
Synthetic identity fraud combines both real and fictional identity data to create fictitious identities. Since these fictitious identities are designed to mimic legitimate ones, they are quite difficult to detect once they have infiltrated the system. This type of fraud results in direct financial losses to corporations and governments as well as increasing other enterprise costs.
A fraudster’s success in cheating the system using falsified identities depends on their ability to circumvent vulnerable identity verification processes. Today – when every customer is a digital customer, companies must deploy better identity proofing measures to reduce risk and minimize the damage stemming from synthetic identity fraud.
What is Synthetic Identity Fraud and How Does It Work?
Unlike traditional forms of fraud that use a stolen identity, synthetic identity fraud is carried out by combining real and fabricated, slightly altered, or completely fake personally identifiable information (PII) to create fictitious identities. For example, a synthetic identity can use a real social security number (SSN) and couple it with a fake name, counterfeit driver’s license, and other data to make it look like a legitimate person owns the data.
Credit applications made with synthetic identities are often denied because there is no credit history on record associated with the applicant. Nevertheless, by simply filing the request, a credit file can now be created under the bogus identity’s name. With this history in place, the fraudster can now use that synthetic identity to open new accounts and start stacking loans.
Some scammers use the accounts to improve their credit score and history. Afterward, they “bust out” by maximizing credit limits and ceasing payments. On the other hand, some grifters pretend to be fraud victims and use a fictitious identity to dispute fraudulent charges.
Effects on Victims
Synthetic identity fraud negatively impacts consumers and businesses alike.
According to CSI Web, the Social Security Numbers (SSNs) used to create fake identities usually belong to the following:
- Children who could not apply for loans until they become age-eligible
- Individuals whose SSNs followed the Social Security Administration’s (SSA) Randomization Program
- Senior citizens who are less likely to monitor their credit histories
- Homeless people who do not usually interact with financial institutions; and,
- Deceased persons
While the effects of synthetic identity scams cannot be felt by the dead, the living can still suffer its consequences. These victims might shoulder out-of-pocket expenses, upon discovering that their PII data have been used in a scam. Furthermore, unless the victim can successfully dispute that they were fraud victims, their credit history might get tainted and prevent them from applying for legitimate loans.
Consequently, as these fictitious identities go undetected for a long time, they can cost credit card companies and banks severe losses. Aite Group, an advisory firm, estimates that each synthetic fraud incident can cost lenders up to $15,000, while total annual losses in the United States were estimated to increase to $1.25 billion in 2020.
As synthetic identity fraud often relies on SSNs of unaware individuals, fragmented credit history files associated with varying identities can be created against a single social security number. Credit providers can take up to several years before they can clear out negative data from these files. This type of fraud not only incurs substantial costs for financial institutions but also time and effort by individuals forced at no fault of their own to clean up their credit scores.
Deter Synthetic Identity Fraud with Modern Identity Verification Solutions
The ideal procedure to stop synthetic identity scams is prevention. Institutions must block fraudulent attempts from the point of application by verifying the legitimate identity of their customers.
Social security numbers are not effective identity verifiers as this information can be readily obtained. Moreover, while an identity document can be verified to be owned by an applicant, the ID itself might be forged.
Organizations must shore up their identity authentication methods with robust solutions that are not easily circumvented.
They must leverage the efficacy of mobile facial biometric identity verification to prove their customer’s claimed identity. Mobile biometric identity verification will match a person’s facial image obtained via a selfie they took to the reference photo on the identity document provided. The more secure identity verification solutions will also ensure a live person is present through a liveness detection check that requires the applicant to perform gestures such as moving their head, smiling, or blinking at the time of authentication.
Financial institutions and credit bureaus must also implement automated identity document authentication that performs driver’s license authentication with speed and accuracy to ensure the genuineness of the applicant’s government-issued credentials.
Advanced identity proofing solutions enable low-friction identity verification, which helps protect the network and delivers a seamless customer experience.
Synthetic identity fraud is on the rise and organizations need to move steps ahead of grifters. Today’s advanced enterprises must reduce the chances of criminal infiltration by determining and blocking fraudulent account applications right from the start.
They must leave behind conventional identity proofing methods that rely on easily stolen information such as social security numbers. Instead, they must deploy robust identity verification that leverages effective anti-fraud technology and offers identity certainty in the applicant. Data analytic tools can also help to detect potentially fraudulent individuals and make better onboarding decisions.
With the right solutions and partners, institutions can better spot fake identities from real ones to protect their network and safeguard customers.
authID‘s Proof™ delivers trusted identity verification at the point of application, blocking fraudsters before they can circumvent the system. It harnesses mobile technology, anti-spoofing liveness confirmation, and automated identity document authentication to expedite conversion and filter fraudulent identities.
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authID.ai is a provider of an Identity as a Service (IDaaS) platform that delivers a suite of secure, mobile, biometric identity solutions, available to any vertical, anywhere. With authID‘s products, institutions can mitigate synthetic identity fraud and minimize losses. Contact Ipsidy today at 1 (516) 778-5639 or click here to schedule a demo.