Personal identity is a critical element of any marketing plan. But, what if the customer isn’t a real customer… or even a real person at all?
Identity theft is not new phenomena. But, newer tactics like synthetic identity theft — sometimes known as “frankenstein fraud” — are making it harder than ever to fight back.
Today, we’re taking a high-level look at synthetic identity fraud. We’ll see why it’s so effective, some of the tactics fraudsters use, and how AI is exacerbating the problem, but may also provide a solution.
Synthetic identity theft doesn’t rely on obtaining complete customer account information. Instead, fraudsters create “frankenstein” identities by piecing together fragments of legitimate information from multiple real people.
That faux identity is basically a non-existent consumer who can apply for credit cards or loans. Fraudsters typically build their fake persona’s credit rating, obtaining more lines of credit and loans, as part of a scam that can be ongoing for years. When the time is right, the crook will typically max out all their lines of credit, then disappear.
Read MoreWhile it’s true there is no one person behind the identity, many of the data points being used come from actual human beings. That means thousands of dollars of debt could be connected to that number and come back to haunt the victim later. Even without liability for the stolen money, damage to that person’s credit rating could take years to overcome.
Children and elderly consumers are common targets. They can have their credit compromised, or even miss out on government benefits as a result. The merchants also lose goods sold to non-existent customers, and face other potential losses, such as chargeback fees.
Read MoreWhile it’s true there is no one person behind the identity, many of the data points being used come from actual human beings. That means thousands of dollars of debt could be connected to that number and come back to haunt the victim later. Even without liability for the stolen money, damage to that person’s credit rating could take years to overcome.
Children and elderly consumers are common targets. They can have their credit compromised, or even miss out on government benefits as a result. The merchants also lose goods sold to non-existent customers, and face other potential losses, such as chargeback fees.
Read MoreSynthetic credit fraud schemes are big business; exactly how big may not be known unless a criminal is caught.
Scammers have been known to use synthetic profiles to swindle millions of dollars from the federal government, commit bank fraud, and even defraud covid-19 relief programs. All told, millions of dollars are lost every year to some of the real-world scams we’ve outlined here.
Read MoreSynthetic identity fraud prevention is a must-have for deflecting financial crimes. Because the end result (a fraudulent purchase) is similar to other types of payment fraud, some of the techniques used to combat synthetic identity fraud are essentially the same as for any type of pre-transaction fraud.
Customer verification tactics like multi-factor authentication, CVV validation, and using the address verification service are basics. AI and machine learning are ideal for synthetic fraud detection, uncovering subtle trends and fraud patterns that less-sophisticated rules-based systems accept. It’s also important for you to stay current on the latest fraud trends, and keep your staff informed, too.
Read MoreEven under the best of conditions, consumer fraud is hard to detect and prevent. The combination of real and fake data means standard rules-based verification procedures often fail to detect them prior to purchases.
Naturally, there are a few red flags to watch out for. Beware of all the same things you check for with other suspected identity theft cases, along with other factors like a new or narrow online presence, or a number of credit cards with only minor differences, all going to the same shipping address.
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One telltale warning sign that you may have been a victim of synthetic identity theft is if you discover a loan or credit line you didn’t apply for listed on one or more of your credit reports. If you receive calls, texts, emails, or letters about bank accounts or credit cards you didn’t open, that’s also an alarming warning sign. For merchants and financial institutions, inconsistencies in data traits or a conspicuous lack of social media activity can be a warning sign of synthetic identity fraud.
A fabricated identity combines real personally identifiable information (PII) from one or more identity theft victims with fake information, such as a name, date of birth, address, gender, ethnicity, or occupation. The result is a new, fake identity that scammers can use to commit financial, benefits, or tax refund fraud.
A sudden change or drop in your credit score, the presence of loans or credit cards you don’t recognize, or letters or other correspondence regarding bank accounts you didn’t open are all red flags that suggest you may have fallen victim to synthetic identity theft.
Consumers can regularly monitor their credit reports for signs of identity theft. Meanwhile, merchants and financial institutions can cross check public and private databases, review credit reports, search for social media profiles, and perform liveness checks to detect possible identity theft.
You can fight identity theft by filing a police report, submitting a report with the Federal Trade Commission (FTC) at www.identitytheft.gov, or by filing a complaint with the FBI's Internet Crime Complaint Center (IC3).
