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synthetic identity theft criminals

Verifying Identities to Stop Synthetic Identity Theft

As technology advances, so do fraud techniques. Online platforms are changing the ways criminals perform their nefarious activities. These customer-not-present environments are allowing them to perform transactions and sign up for services using stolen identities. One common way they do this is through synthetic identity theft. Companies must create practices of verifying identities online to stop synthetic ID fraud.

What is Synthetic Identity Theft

synthetic identity thief

Synthetic identity fraud differs from traditional identity theft because the perpetrator creates a new composite identity rather than stealing an existing one. When synthetic ID fraud occurs, fraudsters take different personally identifiable information (PII) from real identities and piece it together with fake information. Some or all the identity information is correct, but the combination of various data creates a usable identity that represents a fake person. In many cases, real Social Security numbers (SSN) are taken and attached to fake information, but it can be any combination of real and fake PII. It is the combination of all these different pieces of information that create synthetic identities that are used for fraud.

Typical Characteristics of Synthetic ID Fraud

Children and elderly people are the main targets for this type of fraud. Sometimes even deceased individuals from the 19th century are used for synthetic fraud. They are more likely to have clean credit than average adults. Plus, they are less likely to notice that fraud is taking place. This means it will be easy for criminals to open accounts with their information. They will also have a longer period of time to commit fraud before it is noticed.

Typical Synthetic Identity Fraud Behavior

One of the most common behaviors used by synthetic identity criminals is known as a bust-out. Bust-outs are long-term criminal behavior where a criminal will slowly build the credit of their synthetic identity. Over a period of months or years, he or she will pay off small purchases with the intention of obtaining larger loans in the future. After this is achieved, the synthetic identity criminal will take that large loan without having any intention of paying it back.

It is also worth noting that synthetic identities are used for more than financial harm. Terrorist groups also use synthetic identities to serve their ideological purposes. They will use these identities for a variety of purposes including distributing funding or obtaining valuable resources like cell phones and airplane tickets.

Why Synthetic Fraud is a Problem

Synthetic fraud is the fastest-growing form of identity theft according to the US Federal Trade Commission. They state that it is one of the hardest forms of identity theft for businesses to detect. An Equifax study found that losses associated with this fraud amounted to around $25 million a year for communications and energy companies. Other business sectors are facing around $800 million in costs associated with synthetic fraud.

Synthetic fraud is bad for companies because they are the ones who are affected by it. Unlike other types of fraud like identity theft, there is no real consumer victim. This means the responsibility of dealing with synthetic identity fraud falls on the institutions that provide services to synthetic identities. Businesses can lose significant revenue dealing with the repercussions associated with synthetic identity fraud. Synthetic ID fraud is associated with 5% of uncollected debt and 20% in credit losses. Plus, businesses can lose more money by receiving fines for violating Know Your Customer (KYC) or Anti-Money Laundering (AML) regulations.

That is not the worst of it though. Reports state that synthetic ID theft is growing at a rate of 18% each year. This means companies must rally together to find solutions that stop synthetic fraud from happening.

Stopping Synthetic Fraud by Verifying Identities

The rise of synthetic identity theft showcases a problem in current business practices. Companies are not doing their due diligence to really know customers when onboarding them in customer-not-present environments. Companies are not verifying identities by comparing the data imputed into their onboarding platforms. Instead, they are only checking some of that information. For example, many companies compare SSNs with dates of birth but do not compare SSNs with names. This means that these companies are not using all the tools available to them to prevent identity theft. In many cases, simple crosschecking would stop synthetic fraud from happening.

IDMERIT offers identity verification solutions that can help prevent synthetic identity fraud. IDMvalidate is a solution that scans applicant IDs during onboarding and crosschecks the PII on the ID in a variety of databases within the applicant’s country of origin. It also requires a biometric selfie with liveness detection to check that the applicant is the same person on the ID scanned and crosschecked.

It is unlikely that most cybercriminals will go to the trouble of creating an ID for a synthetic identity that is liked to their biometric information. In most cases, this solution will stop synthetic fraud in its tracks. Identity verification offers a powerful solution for dealing with synthetic identity theft.

Alex McGinness

Alex is passionate about making the world a better place. She believes she can change the world, and one way she can do that is by helping businesses grow online through digital marketing. She excels at branding, graphic design, web design, social media management, and content writing. Alex finds the most success when she is working with companies that produce services or products that make the world a better place. She enjoys working with a collaborative team that is organized, goal-oriented and harmoniums. At IDMERIT, she manages their digital presence online as their in-house marketing coordinator. Her goal is to showcase the IDMERIT brand as a leader in global identity verification services.