Synthetic identity fraud is a complex form of identity theft that poses a significant challenge for organisations looking to detect and prevent it. This type of fraud involves combining real and fake information to create a new identity that can be used for financial gain. With cybercriminals constantly evolving their techniques, synthetic identity fraud has become increasingly sophisticated and difficult to identify.
Criminals typically start by obtaining real identity components, such as Social Security Numbers (SSNs), and then fabricate additional details like names, addresses, and dates of birth to build a synthetic identity. They use this fake identity to open credit accounts, secure loans, and engage in various forms of financial fraud, often resulting in substantial losses for financial institutions and other businesses.
Unlike traditional identity theft, where a criminal uses an actual person’s identity, synthetic identity theft involves exploiting a partially or entirely fabricated identity that is not tied to a single individual. This makes it harder to detect and allows fraudsters to cause significant financial damage before their activities are discovered.
The average charge-off balance for synthetic identity fraud is $15,000 per case, with projected losses of at least $23 billion by 2030. These losses include direct financial costs, operational expenses related to investigating fraud, reputational damage, and potential legal and regulatory costs. Businesses need to implement strong identity verification and fraud prevention measures to protect themselves from the financial impact of synthetic identity theft.
Detecting synthetic identity fraud can be challenging, but there are strategies that companies can use to identify potential cases. Monitoring unusual behaviour, implementing document verification, cross-checking identity details, detecting synthetic identity patterns, using biometric verification, leveraging fraud detection technology, collaborating with credit bureaus, and educating employees and customers are all effective ways to detect and prevent synthetic identity fraud.
Preventing synthetic identity theft requires a comprehensive approach that includes strong data security practices, enhanced customer identity verification, monitoring transactions and customer behaviour, implementing data minimisation and retention policies, educating employees on security best practices, conducting regular security audits and assessments, protecting against insider threats, using third-party solutions wisely, implementing a robust incident response plan, engaging in industry collaboration, and educating and supporting customers.
By adopting these strategies, businesses can improve their ability to detect and prevent synthetic identity fraud, reducing the financial risks associated with this type of fraud. Staying informed about emerging threats and continually refining fraud prevention measures are essential steps in safeguarding operations against synthetic identity theft and other forms of financial fraud.
