Synthetic Identity Fraud is a Complex and Growing Challenge

Balancing approval speeds with increased confidence demands a fraud-prevention approach that assesses applicant identity and application behavior in near real time.
Download the White Paper

Synthetic Identity Fraud

Contact Us

What is Synthetic Identity Fraud?

Synthetic Identity Fraud
Synthetic identity fraud is a problem that is growing in sophistication, intensity, and frequency. A synthetic identity is a combination of fabricated credentials where the implied identity is not associated with a real person. Fraudsters may create synthetic identities using potentially valid social security numbers (SSNs) with accompanying false personally identifiable information (PII).

For example, the synthetic may have a real, “shippable” address and the SSN may appear valid, but the SSN, name, and date of birth combination do not match with any one person.

A major contributing factor to the heightened risk associated with synthetic identities is the implementation of social security number randomization, the Social Security Administration’s (SSA’s) approach to SSN issuance that took effect in July 2011.

While this new approach was designed to provide higher safeguards for the public, it has also made it more difficult for fraud detection systems to identify a fictitious SSN. Compounding the problem is that synthetic identities are not created equally. The method fraudsters use to compose a fake identity has an impact on the level of financial harm a synthetic identity can do and how easily it can be detected.

The methods fraudsters use to create synthetic identities currently fall into two categories:

1. Manipulated Synthetics

Synthetic identities based on a real identity where limited changes are made to the SSN and other elements. Individuals often use these manipulated identities to hide a previous history and gain access to credit and may or may not be used with malicious intent. Individuals with bad credit histories may create fictitious identities to be approved for new credit for legitimate purchases that they intend to repay. The good news for enterprises is that manipulated identities can be detected. The key to identifying manipulated synthetics is that they often collide with the real identity they are augmenting and do not pass validity checks.

2. Manufactured Synthetics

Originally, these synthetic identities were composed of valid data assembled from multiple identities – sometimes referred to as ‘Frankenstein’ identities because fraudsters cobble together bits and pieces of personally identifiable information (PII) from real people to create fake identities. More recently, they are built from invalid information, including SSNs that fraudsters choose from the same range of numbers the SSA now uses to randomly issue SSNs. The PII used to create the account does not belong to any known consumers. This new form of manufactured synthetics is difficult to identify with current techniques.

The Dangers of Synthetic Identity Fraud

The true danger of synthetic fraud is that, unlike third-party fraud where an entire identity is stolen and used to defraud enterprises and victims, synthetic fraud frequently has no specific consumer victim. That can sound like a good thing – until you realize that consumer victims are a critical tool in detecting and stopping fraud. The lack of a clear victim presents two challenges to enterprises.

  • Without a consumer to alert an organization of fraudulent activity during account life, fraudsters can use synthetic identities to keep accounts open for months or years, garnering credit line increases and improved credit standing, only to eventually max out the credit line and disappear without a trace.
  • Once the account charges off synthetic frauds are often categorized as credit bads – since there is no clear evidence of fraudulent activity. For enterprises, this makes it difficult to identify a synthetic fraud problem – and even harder to know if new defenses are proving effective.

These examples show the difficulty in tracking and quantifying losses from synthetic identities. Additionally, there are often inconsistencies within organizations on what constitutes a synthetic identity and even disagreement on whether this is a fraud or credit problem. Without a paper trail leading to a real person, the true victims of synthetic identity fraud are the lenders and service providers who are left to absorb what can be high-frequency and high-dollar losses.

Protecting Against Synthetic Identity Fraud

Synthetic identity fraud is a complex challenge that is growing by the day – solving it requires effective strategies that examine the core issue of identity legitimacy and the typical outcomes. By creating a holistic defense capable of addressing the entire issue, enterprises can better maintain performance as synthetic fraudsters shift their methodologies.

Combating synthetic fraud should not be done in a silo. Connect with other industry partners and law enforcement to share information, identify trends, behaviors, and threats. By leveraging these best practices, you can help improve your ability to detect and mitigate synthetic identity fraud.

Contact us to learn more about how to stay ahead of evolving threats with advanced fraud detection technology – while reducing costs and increasing efficiency. Begin by downloading the white paper, “Uncovering Synthetic Identity Fraud".

Download the White Paper

Complete the form to download

This article is for educational purposes only and does not guarantee the functionality or features of LexisNexis products identified. LexisNexis does not warrant this article is complete or error-free.