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Synthetic Identity Fraud: All You Need To Know

Identity theft is a significant concern for any business, particularly those in the financial sector.

One scam to avoid is synthetic identity fraud, a rapidly growing type of identity theft that involves the use of both real and fake information. Criminals create these counterfeit identities, also known as Frankenstein IDs, by sewing together a false name, an actual date of birth, and a stolen social security number or using other fraudulent combinations.

However, experts at Money 2.0 Conference reviewed and discussed that synthetic identity fraud uses some legitimate information, which may be more challenging to detect. With these IDs, fraudsters can open bank accounts, apply for loans, and obtain credit cards without having to repay the money.

What Causes Synthetic Identity Fraud?

The theft of a Social Security number is the first step in synthetic identity fraud. Scammers can either steal information from discarded documents, buy it on the dark web, or obtain it through a data breach. Unfortunately, getting this information is not difficult.

The cybercriminal then creates an account or accounts with the SSN, a fictitious name, address, and date of birth to create a false identity. Once they've created this fake ID, fraudsters will use it to obtain loans, apply for credit cards, and establish a credit history until they're caught. They can sometimes use the fake ID for months or years before their scheme is discovered.

In the beginning, synthetic IDs enable identity thieves to practice bust-out fraud, which entails opening fake accounts and establishing good credit. Once the scammer has established good credit and healthy credit lines, they will max out all available credit and disappear.

Finding these con artists is extremely difficult because no trail leads to them. The only trail leads back to the person who used their stolen SSN. That person may have difficulty proving their innocence and must demonstrate that the false information came from a thief. Creditors usually send the accounts to collections and eventually write them off.

Financial Costs & Loss Of Brand Trust

As reviewed at the Money 2.0 Conference’s Spring Edition, lenders suffer significant losses due to synthetic identity theft for various reasons. Because it is a long-term scam, con artists can amass large amounts of credit before cashing out. They frequently accumulate large loans with no intention of repaying them.

When it comes to data breaches and identity theft, consumers are unforgiving. They frequently blame the institution as much as those who stole the money. Any company associated with fraudulent schemes often loses customers. These scams target financial institutions in particular.

Identifying and Preventing Synthetic Identity Theft in Financial Institutions

By implementing the following safeguards, you can help protect your company's reputation, bottom line, and customer base:

Implement biometrics when onboarding new customers: Using biometrics such as facial recognition, fingerprint scanning, or iris recognition when onboarding new clients reduce the likelihood of their accounts being compromised.

Use multi-factor authentication: Adding multi-factor authentication to your customer log-ins increases your security significantly. To deter potential thieves, your customers can easily enter a code from an email or SMS and their username, phone number, and password.

Machine learning can detect suspicious activity: Certain algorithms allow your platform to see unusual customer behavior. Machine learning can identify suspicious purchases, geographic locations, malware threats, and unfamiliar devices, prompting the user to perform additional security checks before completing the transaction.

Protect Your Organization from Synthetic ID Scammers

Your company may become a victim of financial crime. Taking basic security precautions is no longer sufficient. You must employ cutting-edge security technology to protect your business and your clients. There is an imperative need for more knowledge regarding the increasing scams, fraud threats, and spam. Upcoming insurance conferences, such as the Money 2.0 Conference, provide a platform for key stakeholders to learn more about catching synthetic fraud.

10/14/2022 - 10:03

Lakshay Mohanpuriya

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Lakshay Mohanpuriya
Author Name
Lakshay
Author Bio

Lakshay has always been drawn to the world of finance. His fascination for it led him to join the organizing committee for the Money 2.0 Conference - an annual conference exploring FinTech trends, showing how to best manage one's money, identifying scams/fraud and fake investments spam, as well as highlighting ways to stay safe.