In Data Acquisition, Fraud, Risk Management

For banks and other financial institutions (FIs), fraud detection and mitigation is big business. Organizations spend billions every year fighting fraud, and fraudsters claim billions more through carefully orchestrated and executed schemes. One of the most insidious types of fraud is also one of the fastest growing – synthetic identity fraud.

Synthetic identity fraud is “a type of fraud in which a criminal combines real and fake information to create a new identity…[which] is used to open fraudulent accounts and make fraudulent purchases.”[1]

Many times, component parts of a synthetic identity – like SSN, birthdates, addresses and other personally identifiable information (PII) – are cobbled together from information obtained by data breaches or hacking.

Big Impacts for Banks

Synthetic identity fraud “accounts for 10-15% of lender losses each year” according to a recent Banking Exchange post. Total losses from synthetics are estimated to be up to $6 billion annually, and Zoot partner LexisNexis Risk Solutions indicated that “61% of fraud losses for [large] banks stem from identity fraud [and] 20% of the identity fraud incurred by these larger banks is synthetic identity fraud.”[2]

A 2019 report by the Federal Reserve noted that “the largest synthetic ID ring detected to date caused $200 million (or more) in losses from 7,000 synthetic IDs and 25,000 credit cards.”[3] The Aite Group estimates that “each instance of synthetic identity fraud costs lenders between $10,000 and $15,000,”[4] and a recent post on fool.com states that synthetic identity fraud “accounts for 80% of credit card fraud losses.”

Clearly, this kind of fraud is expensive and rampant. What can banks and other FIs do to keep synthetics from sneaking into their portfolios?

Credit Card Fraud Loss

  • Synthetic ID
  • Other

Synthetic Identity fraud accounts for 80% of credit card fraud loss.

Source: fool.com

Sinister and Stealthy

One of the primary challenges of detecting a synthetic identity is that for all intents and purposes, it looks like a new-to-credit consumer. When the fraudster unleashes the ID and initially applies for a loan or credit card, the application will most likely be rejected because the bureaus do not have any information on file.

But that simple act of applying – and being rejected – creates a new bureau file, which allows the fraudster to continue using the information for subsequent credit applications. Once there are tradelines associated with the synthetic ID, the fraudster can continue to build and utilize credit until the inevitable bust-out, leaving the issuer with uncollectable debt.

One compounding issue with synthetic ID fraud is that criminals are usually playing a long game. They will build credit using the synthetic identity “over a period of six months to five years”[5] and will often use the same fraudulent ID to open multiple lines of credit. At the end of the scam, they will max out all of their available lines and disappear.

Because the synthetic identities are so challenging to detect, “many banks may not realize the risk in their credit portfolios” and could be sitting on “hidden time bombs”[6] of potential fraud.

Stopping Synthetic Identity Fraud

All this begs the question: How can banks and FIs stop synthetic ID fraud? The reality is that only a multi-pronged approach can help stem the tide, without having an outsized impact on customer experience. Zoot partners like SentiLink can certainly help during the application phase – scoring applicants on the likelihood that they are synthetic and providing SSN verification as a new electronic Consent Based Social Security Number Verification (eCBSV) provider can help identify applications that simply need to be stopped early.

Other partners like Neuro-ID can identify “digital body language” in the application process to help identify signs of false identity. Other potential avenues to identify synthetics in the application process can include biometric screening and document verification. By combining multiple scores and insights, banks and FIs can get more clarity about whether an applicant may be using a synthetic identity.

Putting all those pieces in place during the application process can be a challenge, but it doesn’t have to be. With the right origination partner, FIs can easily tap into any number of data and service providers and layer their offerings exactly where they want in the application process.

A solution like Zoot’s gives FIs the control they need to access the data they want, and the flexibility to put that data where they need it. With Zoot, FIs can “take [the] necessary measures to protect themselves to protect themselves from synthetic identity fraud using all the tools at their disposal.”[7]

Ready to put Zoot to work to help you stop synthetic identity fraud?

[1] https://www.investopedia.com/terms/s/synthetic-identity-theft.asp

[2] https://www.forbes.com/sites/forbestechcouncil/2019/10/08/synthetic-identity-fraud-is-the-fastest-growing-financial-crime-what-can-banks-do-to-fight-it/#1dda7977ecbe

[3] Ibid

[4] https://www.pymnts.com/fraud-prevention/2020/how-identity-fraud-targets-banks/

[5] https://www.fool.com/the-ascent/research/identity-theft-credit-card-fraud-statistics/#:~:text=Credit%20card%20fraud%20has%20been,%25)%20and%202016%20(66.2%25).

[6] https://www.csiweb.com/what-to-know/content-hub/blog/8-things-to-know-about-synthetic-identity-fraud/

[7] https://www.forbes.com/sites/forbestechcouncil/2019/10/08/synthetic-identity-fraud-is-the-fastest-growing-financial-crime-what-can-banks-do-to-fight-it/#1dda7977ecbe

Recommended Posts

Start typing and press Enter to search