Synthetic identity fraud is among the preferred methods of identity fraud which seems to be growing rather fast in this digital age. Additionally, it can be seen that almost every organization function, from onboarding new clients to making transactions, is now performed online. Hence, proper identity verification is undertaken in order to confirm the identity of the client during the onboarding stage.
What is Synthetic Identity Fraud?
The personal data is taken with the intention of defrauding its rightful owner in traditional identity fraud. An artificial identity is generated and that involves mixing authentic and fictitious information in the case of synthetic identity fraud. This identity can attempt to acquire financial loans, open current accounts, and perform illegal operations with zero risk of being detected for a long time.
This includes forms of financial fraud and the targeting of easily susceptible organizations. Synthetic IDs are created when criminals combine authentic information such as a valid number to an SSN with false names, birthdays, and addresses, among other things. The new identity might not initially be detected because it contains a mix of real and fake identity information.
Suppose any fraudster uses a minor’s social security number, which likely has no credit history and blends it with a fake name and address to create a credit profile. Over time, this profile becomes robust enough to apply for credit cards, take out loans, and meet other financial needs. Fraudsters can use that profile to commit financial fraud and other financial crimes, and the victim might not even realize their identity was used for an extended period.
Why Is Synthetic Identity Fraud a Challenge?
Difficult to identify:
Because synthetic identities are made up of both genuine and fake components, they are difficult to pinpoint. For (certain industries requiring effective) identity verification procedures, such as the financial sector, organizations are exploited by financial criminals with synthetic Identities willing to commit financial crimes. Banks and financial institutes also rely on algorithms that flag completely fake or stolen identities, but synthetic identities make it more difficult to detect them. Therefore, it is a major concern for financial organizations where a small margin of error may cause financial loss.
Long-term Damage:
According to the report, fraud created out of synthetic and compromised identities may go undetected by financial institutions for long periods. Once financial institutions become aware that fraud has occurred, it usually affects the real victims whose information has been misused, especially the children who will discover many years later that their credit history has been negatively affected.
Financial Fraud:
The financial industry has lost billions because of synthetic identity fraud. Criminals abuse the credit system, taking out loans and never repaying while also making fictitious tax returns. This is a large-scale loss to society and organizations as well as for individuals using false names.
Reputational Damage:
Synthetic Identities are used to commit financial crimes, and as a result, companies and organizations have to face reputational damage for their organizations in the competitive market.
How Can You Deal With Synthetic Identity Fraud?
Combating synthetic identity fraud requires a multi-layered approach. Here are some strategies that can help reduce the risks:
Enhance identity Verification:
Owing to the increase in digital transactions and client onboarding, it holds great importance to implement advanced technology based systems like artificial intelligence based identity verification systems that validate the identity of the business client increasing its security level. Facial recognition and live location features of identity verification help to authenticate identities exactly and ensure that a person is who they claim to be. Video KYC is an advanced KYC process in which an agent authenticates identities on a live video call. Therefore, authenticating the identity of the new client before onboarding them will help identify whether the identity is genuine or not.
KYC and AML verification are two primary verification that help in identity verification and background verification; both verification methods help to evaluate the business risk associated with the client related to money laundering, terrorist financing, tax evasion, and illegal activities. AI and machine learning KYC identities automatic verification systems help mitigate the risks related to identity theft and impersonation. AML solutions assist in verifying clients’ backgrounds through the searches against adverse databases, PEP, and sanctions lists.
Synthetic identity fraud and other impersonation strategies cause great losses to organizations helping carry on reliable transactions for banks, financial institutions and fintech, insurance, and all other financial sectors.
Educate Consumers and Employees:
Raising awareness is one of the best defenses against fraud. Educating consumers about how synthetic identity fraud works and how to protect themselves can prevent them from becoming unintentional victims. It is essential to educate consumers and employees about it and safeguard the business.
Conclusion:
It is a universal challenge that all small, mid, and large scale firms on this internet face, synthetic identity frauds. In order to avoid such financial scams, it is critical to follow certain mandatory procedures. For example, how a client’s identity must be verified for legitimacy or other uses, is critical. It helps to recognize identity fraud and theft and prevent financial crime. By implementing comprehensive identity verification solutions, companies and organizations can protect themselves from fraud because of synthetic identities. Nobody wants to bear any financial loss just because of identity fraud. Therefore, choose a reliable and trusted identity verification solutions provider that provides comprehensive solutions for identity verification.
Authenticate business identities with comprehensive identity verification solutions and ensure genuine identities. It not only ensures regulatory compliance but also allows seamless client onboarding, mitigates risk, builds trust, and prevents financial fraud. The key to combating synthetic identity fraud is to implement an advanced identity verification system in organizations that automatically provides red alerts for fake ID documents and prevents fraudsters. Investment in the latest technology keeps organizations ahead of the curve in the competitive market. It ensures fraud-free business in the digital world and also enhances its reputation in the market.
