What Is Synthetic Identity Theft & How Is It Different From Traditional Identity Fraud?
Being a victim of fraud is nothing but a devastating experience because your world goes upside down once you come to know that your hard-earned money has been stolen and is almost impossible to recover back. In the 21st century, the problem of cybercrime is nothing less than a hassle for the government and security agencies because it seems like an impossible task to stop it from happening. The reason being is fraudsters always find a new way to steal money, no matter how many security measures are in place.
If you talk about the method that gets used maximum time for doing fraud is synthetic identity theft. According to McKinsey, the growth rate of synthetic identity fraud in terms of financial crime is highest in the US.
Let’s learn about synthetic identity theft to understand why it is so lethal and hard to prevent.
What is synthetic identity theft?
When criminals mix fake information with the real one to defraud any individual, financial institution, or government agency, it’s synthetic identity fraud. Generally, fraudsters combine wrong information with SSNs (Social Security Numbers) and names to make a new identity to carry out financial crime.
This kind of fraud is quite common in the USA because identity verification heavily relies on PII (Personally Identifiable Information) such as SSNs in America.
Since some real information is involved, synthetic identity fraud is hard to detect. And mostly, victims of this fraud are children and elderly people because they don’t check their credit information frequently. Furthermore, fraudsters nurture fake identities over time and build a positive online payment history so that they can apply for maximum credit. When satisfied with the issued credit, they do the fraud and disappear immediately.
Large payouts and being hard-to-detect are the two primary reasons why criminals prefer synthetic identity theft.
Now, there should be no doubt regarding identity theft (synthetic) and how it gets done.
How does synthetic identity theft differ from the traditional one?
After getting an answer to a question — ‘What is identity theft (synthetic)?’ — you must be curious to know how it differs from traditional identity theft.
In traditional identity theft, a fraudster impersonates someone else and uses stolen identity documents for the fraud. They usually max out the credit line at once, which alerts the victim about the fraud. Consequently, traditional identity theft gets reported more quickly than a synthetic one.
Plus, investigation authorities do not consider victims responsible as they can easily track unusual activity in the reported accounts or received financial statements.
On the other side, victims of synthetic identity theft are always under the radar because real information was involved during the fraud. Plus, it gets done in small chunks, which allows the fraudsters to stay untraceable for a longer period.
Synthetic identity theft is an example of:
- Identity fabrication: A fictitious identity (no involvement of real PII) gets used.
- Identity manipulation: Modification in the real PII gets done to create a new identity.
- Identity compilation: A combination of real and fake PII gets used to form a new identity.
We hope you have understood the difference between both frauds. Now let’s understand why fraudsters rate synthetic identity theft higher than the traditional one.
What is the impact of synthetic identity theft?
Fraudsters use synthetic identity theft for tricking not only the government but also several other organisations into believing that these are the identities of real people. Financial institutions have to suffer huge losses due to this as lenders are left with nobody to blame but a fictitious identity with fake details. In certain cases, fraudsters pile up bogus charges, then use actual information to create a fraudulent identity and get their credit line restored by posing as a fraud victim.
Some of these synthetic identity thieves are not motivated by stealing money but are illegal immigrants who forge a fake Social Security Number to gain access to bank accounts and manage their finances.
Why do fraudsters rate synthetic identity theft higher than the traditional one?
In traditional identity theft, the chances of being caught are too high. Plus, the fraudster has to bust out the credit line at once to steal maximum money. But, this is not the case with synthetic identity theft because the fraudster can milk the cash for a more extended period without even being traced. This is the primary reason why criminals opt for synthetic identity theft rather than the traditional one.
Moreover, fraudsters don’t have to go to great lengths to achieve their goals. They follow the below-given steps to get their job done:
- Create a new fake identity: A fraudster first visits the dark web to purchase stolen PII obtained via methods like social engineering, data breach, etc., to create a new fake identity.
- Apply for credit: The fraudster uses the newly created identity to apply for credit online. Usually, the financial institution rejects the submitted request when they find no credit history.
- Continue to apply for credit until they succeed: The fraudster persistently applies for credit until they get approval from any of the financial institutions. Often, high-risk lenders grant the approval. After this, the fraudster makes timely repayments to solidify their credit record for getting a high credit limit. To attain a higher credit limit, the fraudster then uses many tactics like building a social media presence, creating fake businesses, etc.
- Bust out finally: The fraudster keeps nurturing their synthetic identity until they get a larger credit extension. Once done, they bust out to max out the credit line. Some fraudsters even claim identity theft to remove all the imposed charges so that they can max out the credit line for a second time.
How to prevent synthetic identity theft & traditional identity fraud
With the rise in identity fraud, both synthetic and traditional, it is imperative that companies improve their identity verification process. Outdated techniques like Social Security Numbers and credit bureaus can’t make the cut in today’s day and age with a large number of data breaches.
The best way to combat these is to use more advanced forms of identity verification such as document and biometric verification. Cross-referencing multiple data points instead of just one is another blocker fraudsters have to face, which makes their jobs much harder. The best practice would be to use an amalgamation of various factors, including but not limited to document, biometric & device verification. This would provide an efficient and accurate way of fraud prevention resulting in a better customer experience.
An efficient identity verification solution would make the difference between detecting fraud after it has already occurred and preventing fraud before it can occur in the first place.
Financial frauds have always been an awful experience because they not only leave you helpless but also make a big dent in your brand image. And stopping them has become an uphill task because fraudsters have been finding new ways to steal your hard-earned money.
With the help of this article, we have explained synthetic identity theft and how it differs from traditional identity fraud. We have also put the spotlight on the process that fraudsters use to create a synthetic identity to get a higher credit limit.
In case you want to safeguard your business from such frauds, it is highly recommended to conduct verification properly. It would be great if you partner with companies like HyperVerge, as you will witness flawless verification. To read more interesting and informative blogs like this one, click here.
Happy reading 🙂