In the past, synthetic ID fraud was the tactic of consumers with poor credit ratings. Back then, it was also known as a “credit bust out” with the goal to open credit card accounts or apply for loans, then default and move on.
Now, fraudsters have discovered the same tactics and are using them at scale to cause major headaches in almost every industry.
Synthetic identity fraud occurs when fraudsters use a blend of real and fake information to create a new “individual.” In some cases, the information used is entirely false.
The bad guys then will open up new credit cards or auto loans under the fake individual’s name, with the goal of creating credit records and boosting the credit profile. In other cases, fraudsters will also make major purchases and even obtain driver’s licenses and passports.
Why has it become the new go-to tactic for fraudsters?
“There is no “victim” in Synthetic ID Fraud. There is no real person to make a complaint. It’s takes a bit more time for a fraudster to create the ID but it has a much bigger payoff” — Brett Johnson
The shift to EMV has pushed fraudsters to card-not-present fraud and new application fraud, which is directly correlated to synthetic ID fraud.
Fraudsters only need minimal “true” information to commit synthetic ID theft. Which is the appeal: Fraudsters don’t need 100 percent of someone’s personal information. They can simply synthesize it.
Synthetic identity fraud relies on the use of an identity that has been created in one of three ways:
- Pair a legitimate social security number (SSN) with a fake name
- Use an “inactive” social security number with a real name (typically a child or someone who has died)
- Completely fabricate both SSN and name
It’s not very hard to create a synthetic ID, either. Due to large scale data compromises, fraudsters have easy access to customer identities.
What’s worse, there are ways to speed up this process. Fraudsters now will “piggyback” onto a legitimate cardholder’s account as an authorized user. How is this accomplished? The tactics are very similar to those used on social media to convince people to deposit bad checks or receive a fraudulent wire transfer.
Today: a clear and present threat
This shift requires a more sophisticated approach to predicting and assessing risk, as well as prevention.
Javelin Strategy & Research estimated that new-account fraud will soar 44% between 2014 and 2018, rising from $5 billion in annual losses to a projected $8 billion.
The growth of synthetic ID fraud shows few signs of slowing. Easy access to data that fraudsters use to create synthetic IDs will continue to make fraud an attractive option.