What is Synthetic Identity Fraud?
Synthetic identity fraud is a type of identity theft where criminals combine real and fake information to create a new, fictitious identity. This synthetic identity is then used to commit fraudulent activities, often exploiting financial systems and services.
Synthetic identity fraud is challenging to defend against because it involves manipulating or entirely fabricating identities and gradually establishing credit. The combination of real and false data, as well as the gradual development of credit make it difficult for traditional verification systems to detect and prevent fraudulent activities.
Socure’s solution, Sigma Synthetic Fraud, proactively detects synthetic identity fraud before it causes financial losses or reputational harm. Sigma Synthetic Fraud combines 400+ third-party data sources and uses the industry’s most predictive machine learning algorithms to uncover complex patterns and connect synthetic-specific behavioral elements. This empowers your organization to capture fraud at the door — making way for more good customers.
How to Help Protect Against Synthetic Identity Fraud
Several steps can be taken to protect against synthetic identity fraud.
- Strengthening identity verification processes: Enhance the accuracy and depth of digital identity verification by incorporating biometric data, document verification, and robust authentication protocols to ensure the legitimacy of individuals entering the system.
- Regularly monitoring and updating customer information: Establish a proactive system for continuous monitoring and updating of customer data, promptly identifying any irregularities or inconsistencies that may signal potential synthetic identity fraud.
- Implementing multi-factor authentication: Enforce an additional layer of security by implementing multi-factor authentication methods, such as one-time passwords, biometric verification, or device authentication, to fortify access controls and hinder unauthorized access attempts.
- Utilizing advanced fraud detection technologies: Deploy cutting-edge technologies, including machine learning algorithms and artificial intelligence, to analyze patterns, detect anomalies, and identify potential instances of synthetic identity fraud in real time, augmenting the ability to stay ahead of evolving fraudulent tactics.
- Educating employees and customers about synthetic identity fraud: Foster awareness and understanding among employees and customers regarding the tactics and risks associated with synthetic identity fraud, empowering them to recognize suspicious activities and report them promptly.
- Collaborating with industry partners to share information: Establish collaborative partnerships within the industry to facilitate the sharing of information and insights on emerging threats and trends related to synthetic identity fraud, enabling a collective and proactive response to potential risks.
Socure’s Sigma Synthetic Fraud solution reduces false positives by 25% and increases synthetic fraud capture to 71% in the riskiest 3% of users. With the industry’s largest volume of consortium feedback, human-in-the-loop label cleansing, and generative AI techniques for email tumbling risk detection, Socure expertly stops synthetic fraud while improving the user experience for your trusted customers.
Synthetic Identity Fraud vs. Traditional Identity Fraud
Synthetic identity fraud involves the creation of a manipulated or fabricated identity, while traditional identity fraud exploits a complete and authentic identity of an individual.
Both traditional identity theft and synthetic identity fraud can result in significant financial losses for individuals and financial institutions. However, there are key differences between synthetic and traditional identity fraud that require unique approaches to detection and prevention.
Differences Between Synthetic Identity Fraud and Traditional Identity Fraud
| Synthetic Identity Fraud | Traditional Identity Fraud | |
| Composition of Identity | Involves the creation of a fictitious identity by combining real and fake information, making it a hybrid identity that is harder to trace. | Involves stealing and exploiting the complete and authentic identity of an individual, including personal information such as Social Security numbers, addresses, and financial details. |
| Detection Challenges | Often more challenging to detect due to the gradual and subtle nature of its activities, as well as the synthetic identity’s gradual development over time. | Can be detected relatively quickly when victims notice unauthorized transactions or activities on their accounts. |
| Victim Awareness | Victims may remain unaware for an extended period as fraudsters build the synthetic identity’s credibility, delaying the detection of fraudulent activities. | Victims are typically aware of the theft when they experience immediate financial losses or unauthorized account access. |
| Nature of Crimes: | Involves a more strategic, long-term approach, often targeting financial institutions and exploiting the synthetic identity’s credibility to access higher lines of credit. | Involves direct, immediate harm to the legitimate identity holder, focusing on exploiting existing accounts or creating new ones using stolen information. |
How does a synthetic identity get created?
A synthetic identity is crafted by blending real and fictitious information, starting with acquiring genuine details, such as Social Security numbers, often sourced from data breaches. Fraudsters then fabricate additional components, constructing a new identity with a mix of real and false data. To establish credibility, the synthetic identity is initially used for low-risk activities, gradually building a credit history. Dynamic tactics, including constant information updates and piggybacking on legitimate identities, further obscure detection. The synthetic identity evolves over time. This makes it easier to exploit gaps in traditional verification processes.
What is a synthetic identity used for?
While creating a synthetic identity is complex, the high-value payoff potential makes it worth it for fraudsters. Synthetic identities are used to:
- Establish seemingly legitimate credit profiles
- Create a financial footprint for the synthetic identity
- Conduct low-risk activities initially to establish credibility
- Gradually escalate to high-impact fraudulent transactions
- Build trust within financial institutions over time
- Access high-value loans and credit cards
- Maximize illicit gains through strategic, long-term operation
- Exploit financial systems and services
By blending real and fake information, fraudsters aim to create identities resilient to traditional verification methods. Synthetic identity creation is a strategic endeavor, allowing criminals to operate covertly while gradually building trust within financial systems. This poses a persistent and evolving challenge for cybersecurity and financial institutions and requires advanced synthetic fraud solutions.
Synthetic identity fraud is not a new problem, but this type of fraud has grown rapidly in recent years. Explore the state of synthetic identity fraud, how to best mitigate this major threat to companies’ revenues and brand reputation, and how customers can participate in a Proof of Concept.