What is Synthetic Identity Fraud?
As fraud continues to evolve, so too must organizations in their approach to fraud risk mitigation. This is particularly true for synthetic identities which can be difficult to detect with traditional fraud monitoring systems and pose a serious threat to financial health.
Synthetic identity fraud
Synthetic identity fraud, or synthetic ID fraud, is a fast-growing type of identity fraud. It involves fraudsters creating new, fictitious identities with different components of real identities. For example, fraudsters might use a name from one person, an address from a different person, and the Social Insurance Number of a minor or deceased person. Then, they attempt to gain credit with the fictitious identity without the intention of paying it back. Synthetic ID fraud differs from traditional identity fraud as the fabricated profile is made up of a combination of real and fake pieces of personal information. Fraudsters collect pieces of personal identifiers through activities such as data breaches, social media mining, phishing, and other schemes.
Synthetic ID fraud is made up of three steps:
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Creating a false identity that is fabricated with real and false personal indicators.
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Providing false information about a credit file and history.
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Using a false identity to take out as much credit as possible without repaying the loans.
How big of a problem is synthetic ID fraud?
Understanding and identifying synthetic ID fraud can be challenging for organizations. Why? Synthetic identities look and feel like real people and are often used via online “faceless” channels, all of which makes it difficult to detect.
Organized crime groups are known to use
synthetic IDs as well — layering fraud over extended periods
of time by opening accounts where they’re not intending to
commit fraud for 18 months to two years later. These accounts
are built up to resemble legitimate profiles with small,
seemingly normal transactions used to circumvent fraud detection
systems. This difficulty in detecting synthetic ID makes it a
significant and prevalent problem for lenders and consumers.
The impact of synthetic identity fraud on businesses
With synthetic ID fraud, fraudsters attempt to obtain
credit to use for short-term gain and then abandon the false
identity. As a result, there is no one for the lender to contact
to collect funds from, which results in financial losses and
wasted resources. This process poses a problem for organizations
as misclassified non-payment matters get sent to collections,
negatively impacting lenders. Understanding behavioural fraud
patterns can aid in detecting and reducing the losses incurred
from synthetic ID.
We want to help Canadians live their financial best. If you want to learn more about how understanding fraud can help minimize risk and reduce loss due to fraud, please contact your Equifax Account Representative. You can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.
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