Synthetic fraud is estimated to cost lenders more than $6 billion annually — and by all accounts, this problem is going to get worse before it gets better.
But why is synthetic fraud ballooning – and why are financial institutions finding it increasingly harder to crack down on? A rise in data breaches in recent years has only complicated this problem even more.
To help keep FIs educated with the latest data available in the market — and share expert’s take on how this problem has been transforming — we’ve released a new white paper titled Inside Synthetic Fraud.
"Everyone is worried and preoccupied about synthetic fraud. That's their number one concern in fraud and their number one item in their budgets," Tran said. "Synthetic Fraud is going to be a problem for years to come."
Synthetic fraud allows hackers to set up accounts in a person’s name that appear to be authentic, but are in fact fictitious. The construction of new synthetic IDs is based on combining truthful and false information to build a credit file and then open new accounts, which is perpetrated at scale by opening hundreds of new accounts.
Since fraudsters don’t need as much personal information as credit card fraud, cyber criminals have shifted their attention to this type of fraud. For example, by combining a legitimate SSN with a fake name, or by using a inactive social security number with a real name, or even a fake name and SSN, an entirely new identity can be created. From there, fraudsters begin to open up lines of credit and credit cards under these synthetic identities.
For financial institutions, they often become the real victim of synthetic fraud. Since there is no reported fraud from an actual person, or an actual person to trace the fraud back to, they often end up absorbing the costs. For example, when a credit card is created with a synthetic ID, the balance will never be paid as there is no specific person for the bank to collect from.
This is why banks have placed more emphasis on early fraud detection to alert them of suspicious behavior, and why banks are working to add more verification and authentication to online banking. More fraud detection and security protocols in place can help reduce risks to financial institutions. But you don't have to tackle this problem alone.