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June 21, 2023

Synthetic ID Fraud: The Fastest-Growing Financial Crime in the U.S.

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Synthetic Identity fraud is the fastest-growing type of financial crime in the United States, costing lenders billions of dollars each year. This type of fraud is difficult to stop because it’s hard to detect. But there are steps financial institutions can take to mitigate this threat.

What is Synthetic Identity?

A Synthetic Identity is created when a fraudster uses the personal information of a person who’s deceased or otherwise does not have a recent credit history or credit score, such as a small child or an elderly person. Fraudsters may even create fake social media profiles and other documentation to make the Synthetic Identity seem legitimate.

Keep in mind that while they may share characteristics, Synthetic Identity is not the same as a stolen identity or a fake identity. Synthetic Identity refers specifically to the credit file that is virtually indistinguishable from the credit file of a real individual.

How is Synthetic Identity used to commit fraud?

Synthetic Identity fraud is growing rapidly because it’s easy to organize and perpetrate. Fraudsters use the Synthetic Identity of a deceased or unsuspecting person to build credit over a short period of time.

They initially borrow very small amounts using the Synthetic ID, and they actually pay this money back to build credit. Then they gradually transition to increasingly higher amounts of credit, before disappearing with large sums of money.

Want to know more?
For a deeper dive into Synthetic ID Fraud, what is it and why is it so hard to detect?
Download our whitepaper. 

download the whitepaper


Why is Synthetic Identity fraud so hard to detect?

Know Your Customer (KYC) protocols must be followed by financial insitutions. However, these checks have their limits when it comes to identifying Synthetic ID fraud. If an identity looks real – the SSN is 9 digits, the address matches the zip code, and the phone state aligns with the address – it’s hard to verify whether these credentials belong to the actual person applying for credit.

Also, since the SSN and other information may be from a deceased person, and elderly person, or a child (i.e., people who would not be checking their credit regularly) it will typically take longer to be reported or never be reported at all.

How to stop Synthetic Identity fraud

We asked Frank McKenna, Chief Fraud Strategist at Point Predictive and creator of Frank on Fraud, to weigh in on what can be done to prevent Synethic Identity fraud. (Hint: First you have to know it’s happening!) Read more about this tactic and what he had to say in our latest whitepaper, and learn how to protect your organization and your customers.

download the whitepaper