Fraud is not a new term in the fintech industry. However, lately, frauds are rising considering the evolved methods adopted. With the increase in advanced types of fraud, it's vital to comprehend how they work. The loss incurred from overall identity fraud amounts to nearly $23 billion in 2023 surpassing 2022 with a 13% increase in fraud loss according to the report from Javelin's 2024 Identity Fraud Study.

Synthetic identity fraud is the highest rising and number one threat according to the recent survey of fraud executives by the Aité-Novarica group. Digital purchases are rising with 5.18 billion as the internet population worldwide as of April 2023, which states that from food to clothes to bank account access, every daily need or want is available to access online.

Digital growth is significant for businesses expanding opportunities to grow in the market with over 64% of the world interacting online. The rise in users interacting online states power but also highlights the responsibility this growth brings wherein it incorporates the lookout for consumer safety and imparting a seamless experience at the same time. It is not easy to render such an experience considering the sophisticated methods fraudsters employ to commit fraud, especially in the context of synthetic identity fraud projecting a loss of nearly $5 billion in 2024 to businesses.

Synthetic identity theft is a form of fraud where a fraudster merges stolen data of victims, like SSN (Social Security Number) manipulated with other falsely generated information, like basic details such as names, birth dates, and addresses. To commit fraud these generated fake identities are employed.

Detecting this theft can be complex and troublesome considering the efficiency of traditional fraud prevention systems. The people prone to such fraud are usually the children, the homeless, and the elderly. Such individuals barely track their credit history or use the credits available to them.

For instance, the synthetic may be authentic, with an address, marked as shippable and SSN appearing valid. However, the information linked with the SSN like the name, and birth date may differ from one person’s details to another.

Such fraud takes place majorly to commit application fraud. There is a thin line between Synthetic ID fraud and ID fraud, which is that in Synthetic ID fraud, a synthetic ID is generated whereas in ID fraud, an existing identity is deployed to commit the fraud.

Herein is how synthetic ID creation works:

There are differences in synthetic identity fraud that consist of generating false digital footprints on social media, employing fake checks to pay debts of credit on time temporarily before being offered a larger amount, and rendering people with a good credit amount enticing them to link their accounts to synthetic identity.

A fraudster creates an identity

To create a synthetic identity fraudsters employ some real identity data and merge it with falsely generated information to produce a fake new identity. Majorly, SSNs (social security numbers) are stolen or bought from the dark web. Fraudsters often employ SSNs of those individuals who don’t have any credit history. Thus, they accumulate and merge the information to generate a synthetic identity.

They apply for credit

This is where fraudsters apply for credit online after the synthetic identity is generated, followed by their ID getting inspected by the credit bureau once the application is submitted successfully. Usually, the ID is rejected at first because of not having a credit history though the application is sufficient alone to establish a credit document.

They continue to apply for credit until they are successful

Fraudsters consistently apply to various financial firms to get approval for their credit. Usually, the high-risk lenders approve of the loan in the first attempt. Once approved they make steady repayments on the line of credit to build a credible credit history. Over time, they get access to larger credit amounts from lower-risk lenders. They foster the credit profile over months or years to exhibit like any other authentic credit user.

They boost a positive credit score

Various kinds of techniques are employed by fraudsters to make their synthetic identity look real enabling them access to higher credit and payouts. For instance, they may manipulate their social presence by creating several new accounts on different platforms to establish their presence with false business listings to strengthen their credit profile.

The fraudster ‘busts out’

They continue to maintain the credit score once established in the hopes of acquiring large credit lines. In the end, they ‘bust out’ by exhausting the credit line leading to no repayments before their disappearance. There are high chances of a fraudster claiming it as an identity theft to walk out of paying the charges on the late payment. There are times they provide fake checks to dodge the question of no repayments which meanwhile lets them access the credit line leading to exhausting the credit.

There are some indicators of Synthetic Identity theft:

Detailed and effective Fraud and Risk Management solutions should be implemented to spot these patterns before a fraud of synthetic identity takes place. However, not all solutions cover the entirety of fraud, there are a few vital aspects that assist in decreasing the fraudulent attempts with Synthetic Identity. Herein are a few vital competencies to inspect:

The primary approach:

There are bare to minimum measures you can take on data leaks like reducing the personal data you render to third-party firms. All other perils can be eliminated with common sense and basic security measures. These consist:

Briefing on the above information, synthetic identity fraud transpires when credible details are merged with fabricated ones to generate new synthetic identities. These identities maintain a good credit line for months or years to acquire the trust of lenders with their repayment history. Digital identity makes it easy to distinguish between a fabricated and authentic identity. Scrutinize the digital footprints and their account activities to identify any suspicious events. Organizations ready to combat these frauds know how to differentiate between an authentic account and a fabricated one.

Our solutions employ a cutting-edge anti-fraud prevention approach for identity verification in this digitally evolving time. The digital identity elements consist of email, name, address, device, and IP. Our identity verification solutions when integrated with your platform enable a better grip over fraud identification and measures to prevent the fastest growing frauds in the industry.

Sign3 is a comprehensive platform for fraud prevention which entails you an all in one solution to prevent fraudulent attacks with defense and attack being two modes that we operate alongside fraudsters. Our approach has minimized friction of losses without negatively impacting customer experience.

Easy-to-integrate fraud prevention tools are always the first preference considering the crashes a complex tool might bring and the days it might take for a smooth integration. Increase your organization’s ROI rapidly with optimized solutions and quick deployment to meet your organization’s requirements.

Sign3 offers an integrated, AI-powered approach that combines machine learning with advanced analytics to deliver comprehensive identification, transparency, and detailed insights. The platform’s scalability, coupled with its ML-driven algorithms, ensures rapid detection of malicious activities, even when fraudsters use seemingly legitimate IDs.

Gauge a wide range of signals such as behavioral patterns, social media presence, and other digital footprints like the device ID, IP, and more to acquire a better comprehension of the user account for detecting any potential fraud attempt. Defeat the fraudsters in their own game by identifying their fraud attempt at the application stage to stop before further exploitation takes place.

Organizations that deploy Sign3 have prevented over 95% of the fraud by detecting it at an early stage with excellence in rendering accurate data helping to capture potential frauds and enabling organizations to save millions of dollars by diminishing the false positive rates.