7 Tips for Identifying and Preventing Synthetic Identity Fraud

Identity fraud refers to the crime of stealing an individual’s personal or financial information to use their identity for fraudulent purposes.

Identity fraud is not a new concept. It has been around for a while and was referred to as scams before the term ‘identity theft’ was coined in 1964. So, when did identity fraud come into existence?

How to Identify and Prevent Synthetic Identity Fraud?

There’s no specific timeline as to when identity fraud came into existence.

Criminals have been employing identity theft to get away with punishment for gruesome crimes, such as murder, since time immemorial. But they have gotten more pronounced since the second-half of the 20th century.

In the 1960s came the telephone swindlers. They dangled the fruit of lottery winnings to extract the personal and bank information of their victims.

By the 1980s, theft by garbage had gained prominence. Identity fraudsters rifled through an individual’s garbage to look for discarded mail containing important information, such as bank statements, credit card offers, and bills.

Today, identity theft is mostly committed over the internet. Digital dependency has breathed new life into identity fraud, and there’s at least one identity theft victim every 22 seconds. Identity theft is at an all-time high, with synthetic identity fraud taking up the lion’s share.

What is synthetic identity fraud?

Synthetic identity theft occurs when fraudsters combine real and fake information, such as potentially valid SSNs (Social Security Numbers), with fake personal information to create a new synthetic identity.

Synthetic identity theft involves the creation of a new identity by a criminal instead of them stealing an existing one. The new identity is utilized to open fake accounts or make fraudulent purchases to defraud individuals, financial institutions, and government agencies.  

Synthetic identity fraud is extremely difficult to detect, and is growing in intensity and frequency. 

Why is it difficult to detect synthetic identity fraud?

While committing synthetic identity fraud, fraudsters take their time to build a positive credit history on an identity. Given the legitimacy of the identity, the credit score for such identities usually falls in the good, very good, or excellent category. 

After building up a positive credit history and armed with a good credit score, fraudsters plan a final heist to maximize the associated credit accounts.  

Since the synthetic identities utilize PII (Personal Identifiable Information) and have positive credit history and scores, it’s not possible to flag them by traditional fraud models. 

Instead of relying on traditional fraud models for flagging synthetic identities, a lender can recognize behavior and patterns indicative of synthetic fraud. 

Real individuals will have a consistent history and use the same phone number, physical, or email address over time. In contrast, synthetic identities are inconsistent since they’re a combination of real and fake data.

How can you identify and prevent synthetic identity fraud?

Financial and non-financial institutions can employ the following methods to detect and prevent synthetic fraud, if there’s any doubt about the authenticity of identity or application:

✔️ Go through the individual’s history

If you receive a loan or credit application, review the types of accounts an individual possesses. An individual’s consistency and permanency will reduce their chances of misusing credit. Reviewing the bank accounts and transaction history of an individual will also help uncover inconsistencies, if any. 

Undertaking such an operation manually is not the best idea. Not only will it take up too much of your time, but it also requires a lot of effort and will have room for human errors. Use software like SEON to uncover fraud patterns and prevent synthetic identity fraud effectively and efficiently.

✔️ Ask challenging questions for an individual to open accounts

Financial and non-financial institutions have made it extremely simple for an individual to open accounts and apply for credit. Although this helps make the lives of legitimate individuals easier, it has also made it easier for fraudsters to dupe an institution.

Real individuals have real history, and although a fraudster utilizes a real individual’s PII, they won’t be able to answer challenging questions. So, ask an applicant personal questions that don’t have publicly available information. 

For instance, a synthetic identity will list down the applicant’s home address and place of employment. But fraudsters won’t be able to answer questions pertaining to the individual’s previous job or former home. You can also ask the applicant to upload their selfie.

Such questions bring out inconsistencies in the fraudster’s answers since the answers to these questions are challenging for anyone but the real person to know or recall.

If institutions comply with BSA requirements for customer identification, it’s possible to detect synthetic fraud with the right policies and systems.

✔️ Enforce multi-factor authentication

Implement multi-factor authentication by employing detection tools that alert you whenever multiple accounts utilize the same SSN. Moreover, they should raise red flags when multiple applications originate from the same device or IP address.

Provide your customers with an OTP (one-time password) or code to confirm their identity each time they log in or sign up. Making it compulsory for an individual to confirm they have access to and ownership of these accounts will help you uncover synthetic identities. 

✔️ Utilize fingerprinting

The biggest challenge for a fraudster isn’t to create multiple synthetic identities. It is making a company believe that they’re connecting to its site as a new user every time.

Utilizing device fingerprinting can help you stop such fraudsters from duping your company. Device fingerprinting can help you keep track of an individual customer’s VPN usage, proxy usage, tor connections, suspicious browser set up, and more.

The objective here is to highlight suspicious hardware or software configurations and discern connections between users. Device fingerprinting will help you ascertain patterns and assign a distinctive ID to each device or fraud score to IP addresses.

✔️ Conduct a behavior analysis

It’s not always about gathering data about an applicant. You must also understand user behavior. Sophisticated synthetic identities are difficult to sniff out by just looking at the gathered data points.

You can utilize a mixture of velocity, custom, and machine learning rules to conduct a behavior analysis. You can invest in SIEM technology to obtain an overview of your corporate infrastructure. This will help you analyze a wide range of data points and relate information to assist you in identifying suspicious behaviors.

Consistent reporting and feedback are key to understanding behavior analysis to help you detect even the most sophisticated synthetic identities.

✔️ Analyze digital footprint

Analyzing the digital footprint of your applicants can help you expose synthetic identities. You can start by analyzing their phone numbers and email addresses.

But it’s more impactful to analyze an individual’s social and online presence. By employing a reverse digital footprint, you can discern if the individual’s digital footprint is legitimate or fake. 

This has several benefits, such as:

i. You can comb through an applicant’s social media IDs to confirm their identity.

ii. No digital footprint usually points towards synthetic identity.

iii. Checking out the types of social media IDs associated with an applicant will help you with credit scoring.

iv. Granular information from this activity will be helpful in identifying high-value or high-risk applicants.

✔️ Look out for warning signs

Keep an out for the following warning signs to steer clear of synthetic identity fraudsters:

i. If an account has been open for less than a year but has an unusual increase in transactions. This can be evident during the first few months of the opening of the account or the following months.

ii. When a new account with access to multiple lines of credit starts utilizing all of them to their maximum limits.

iii. If a fairly new account witnesses a significant rise in individual wire transfers or credit transactions, with an increment in the amount each time.

Precautions you can undertake to avoid synthetic identity fraud

Individuals can undertake the following measures to avoid becoming a victim of synthetic identity fraud:

🟢  Check your credit reports regularly: check your credit reports regularly to ensure that no fraudulent purchases crop up.


🟢  Credit freezing: if you believe that your ID is being used by fraudsters, contact the relevant agencies and freeze your credit, disabling access to your credit files. This will ensure that no fraudulent accounts can be created using your PII while you sort the issue.

🟢  Be smart about what you post on your social media accounts: your social media can be easily accessed by a fraudster. Don’t give out your personal data on social media, such as your address and date of birth, used for verifying your identity.

🟢  Be picky about who you share your SSN with: don’t share your SSN with anyone who asks for it. Financial institutions might ask you to share the last four digits of your SSN. Share your SSN with them only if you’re 100% confident about their legitimacy.

Detection and protection from synthetic identity fraud

Synthetic identity theft is a cause for concern. Digital dependency has made it easier for fraudsters to steal your information and commit fraud. 

This can not only negatively impact an individual’s credit score but also damage an organization’s reputation, leaving them reeling from heavy financial losses. 

Identifying and taking stringent steps to prevent being victimized by synthetic identity theft is paramount to protecting yourself and your organization. 

Organizations can rely on robust risk technology systems to filter out fraudulent users and engage customers to help them reach their potential and achieve their goals.

 Arjun Ruparelia for ROI4CIO

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