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Understanding Synthetic Identity Fraud

In today’s digital economy, businesses face an increasing threat from sophisticated fraudsters. One of the fastest-growing forms of identity theft is synthetic identity fraud. This guide will help you understand what synthetic identity fraud is, how it differs from traditional identity theft, and strategies to protect your platform.

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What is Synthetic Identity Fraud?

Synthetic identity fraud occurs when genuine information is combined with fabricated information to create a new, false identity.
Synthetic identities may appear credible, allowing fraudsters to:
  • Open new accounts
  • Make fraudulent purchases
  • Exploit financial systems
A 2023 report from Thomson Reuters estimated losses due to synthetic identity in the range of “$20 to 40 billion and growing”

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Types of Synthetic Identities

Fraudsters typically create synthetic identities in two ways:

Manipulated

A genuine identity with one or more personal details altered. For example, a consumer with low credit might manipulate their identity to hide their previous history.

Manufactured

A combination of real and false information to create an entirely new identity. This identity does not belong to any known or real person.

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Synthetic vs. Traditional Identity Theft

AspectSynthetic Identity FraudTraditional Identity Theft
Identity CreationCreates a new, false identitySteals an existing, real identity
Detection TimeMay go undetected for longer periodsOften reported quickly by the victim
Victim ReportingNo direct individual victim to report fraudIndividual victim can alert authorities
ImpactAffects financial systems and businessesDirectly impacts the individual whose identity was stolen
Detection DifficultyMore challenging due to lack of victim reportsEasier due to victim complaints and unusual activity

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How Fraudsters Use Synthetic Identities

Synthetic identities are often used in:
  1. Financial Services:
    • Opening new accounts
    • Building credit history over time
    • Obtaining larger credit lines
  2. Ecommerce and Online Marketplaces:
    • Creating accounts with lower verification requirements
    • Making high-value purchases
    • Obtaining chargebacks, increasing merchant losses
Fraudsters may cultivate synthetic identities for months or even years before using them for fraudulent activities, making detection challenging.

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Protecting Your Platform

To combat synthetic identity fraud effectively:
  1. Implement robust identity verification processes
  2. Use advanced fraud detection technologies
  3. Monitor account behavior over time
  4. Educate your team about the latest fraud trends
  5. Collaborate with other businesses and law enforcement
Straddle’s identity verification and fraud detection capabilities can help protect your platform from synthetic identity fraud. Our API integrates seamlessly into your onboarding and transaction processes to identify potential risks.
By understanding synthetic identity fraud and implementing strong protective measures, you can safeguard your business and customers from this growing threat.