Where Does Synthetic Identity Fraud Come From?

With today's prevalent digital world, fraudsters are becoming more sophisticated, and one of the fastest-growing types of fraud is synthetic identity fraud. This form of deception is particularly challenging to detect and prevent, making it a critical issue for businesses and consumers alike.

But where does this type of fraud come from, and how does it impact us? In this article, we'll explore the origins and mechanics of synthetic identity theft, shedding light on this elusive threat.

Understanding Synthetic Identity Fraud

Synthetic identity theft occurs when criminals create a new identity by combining real and fake information. Unlike traditional identity theft, where a victim's entire identity is stolen, this type of fraud involves using a combination of real and fabricated details to create a new, fictitious identity. This makes it difficult for detection systems to identify the fraud since the identity does not belong to any one individual.

The Building Blocks of Synthetic Identity Fraud

Real Information

One of the primary sources of this fraud is real information stolen from data breaches. Over the past decade, numerous high-profile data breaches have exposed millions of Social Security numbers (SSNs), birth dates, and other personal information. This stolen data serves as the foundation for creating synthetic identities.

Fabricated Information

To complete the identity, fraudsters mix the stolen real information with fabricated details such as fake names, addresses, and phone numbers. This combination of real and fake data allows the synthetic identity to bypass traditional verification systems, as there is enough legitimate information to appear credible.

Techniques Used to Cultivate Synthetic Identities

Credit Piggybacking

One common technique used by fraudsters is known as credit piggybacking. This involves adding the synthetic identity as an authorized user on an existing, legitimate credit account. Over time, this fake identity builds a credit history, making it appear more legitimate to financial institutions.

Application Fraud

Fraudsters often use these fake identities to apply for credit cards, loans, and other financial products. Since the synthetic identities are designed to appear credible, they can often pass initial credit checks and receive approval. Once the fraudsters have obtained credit, they may use it responsibly for a period to build trust. Eventually the fraudsters will max out the accounts and disappear.

The Impact of Synthetic Identity Fraud

Financial Losses

This type of fraud results in significant financial losses for businesses and financial institutions. Unlike traditional identity theft, where a real person can report and dispute fraudulent activity, synthetic identities do not have a legitimate owner to raise red flags. This leads to prolonged undetected fraud, resulting in substantial financial damage.

Legal and Regulatory Challenges

Another impact of this crime is the legal and regulatory challenges it poses. Since synthetic identities are not tied to a real person, it complicates law enforcement efforts and makes it harder to track down the perpetrators. Moreover, it raises questions about the effectiveness of current identity verification processes and regulatory frameworks.

Combating Synthetic Identity Fraud

Advanced Detection Systems

To combat this issue, businesses and financial institutions are investing in advanced detection systems that use machine learning and artificial intelligence. These systems analyze patterns and anomalies in data to identify potential synthetic identities more accurately.

Multi-Factor Authentication

Implementing multi-factor authentication (MFA) can also help reduce the risk of this kind of fraud. By requiring multiple forms of verification, businesses can make it more difficult for fraudsters to use synthetic identities successfully.

Conclusion

Synthetic identity fraud is a complex and evolving threat that originates from a combination of stolen real information and fabricated details. Its impact on businesses, financial institutions, and consumers is significant, leading to financial losses and legal challenges. By staying informed and vigilant, we can better protect ourselves and our businesses from this growing menace.