FINANCIAL SERVICES, ENTERPRISE SECURITY
The complexity of crime and the ingenuity of bad actors tends to rise to meet the level of the tools society puts in place to stop them. So, while the world is getting better at detecting actions intended to rob its inhabitants, thieves have a distressingly long list of skills to pull from for their misdeeds.
Fraud isn’t new. And identity theft predates the internet to a time when thieves could go through trash cans for discarded bank statements. What is more recent is a crime meant to exploit the conveniences and technological advances that industries have put in place to help their customers. And at the center of this increasingly prevalent set of crimes is society’s most vulnerable groups – the elderly and children.
What is a Synthetic Identity?
A stolen identity is one that has been misappropriated from someone – either online or offline – so that a criminal can commit fraud in the owner’s name. The identity thief might have gotten personally identifiable information (PII) through a data breach, a “phishing” scam, spyware, public wi-fi intrusion, stolen property, or many other ways. The result, however, is typically the same. A criminal uses their stolen identity to open additional credit, get loans, or go on a spending spree – or all three.
Synthetic identity fraud is a more nuanced approach to theft. Synthetic identities are real and valid identities that have been created by criminals using fabricated credentials. Think of it as assembling the pieces of a puzzle. In this case, each piece of the puzzle is stolen, or forged, but then assembled into something that has been legitimized. The process isn’t often fast. A criminal can take weeks to build a synthetic identity, and then months or longer in order to legitimize the identity after it is created. But what it lacks in speed, it makes up for in imperceptibility – an attractive attribute for those looking not to get caught.
Elderly people, who are sometimes less comfortable with technology and more trusting of individuals, are common victims. And children, whose credit history is typically “clean” and not usually monitored, can also be prime targets. More than 1.25 million children were victims of identity theft in 2021, according to a study done by Javelin Strategy & Research.
From Overt to Covert Theft with Synthetic Identify Fraud
In synthetic identity theft, a fraudster might purchase a child’s valid social security number on the dark web. The fraudster then might show up in person or attempt to create an account online at a financial institution. They will likely supplement this valid social security number with fabricated documents. And while the institution might reject the application due to the limited financial history of the individual, a credit file is created just based on the application. That credit file acts as the basis of legitimacy while the fraudsters tries different financial institutions until one takes the bait and extends some credit. Here’s where the patience of the criminal pays off. Criminals may use this line of credit responsibly, making purchases and repaying balances to score higher credit limits. The cycle of purchases and repayment can happen over months or years. And in the typical case where the true identity owners aren’t monitoring these stolen accounts, this scheme can go unnoticed for just as long.
How Often Does Identity Theft Happen?
According to the Aite-Novarica Group, 47 percent of Americans experienced financial identity theft in 2020. To put that in more perspective, there was a 42% increase in identity theft cases from 2019 to 2020, which equated to $712.4 billion in losses. How does synthetic identity theft stack up? It’s hard to say. The vulnerable populations that are often the victims of synthetic identity theft are also less likely to uncover or report the crimes. By its estimates, McKinsey believes synthetic ID fraud is the fastest-growing type of financial crime in the United States. Since fraudsters typically draw on credit created in the name of their fake identities, what is really synthetic identity fraud can look like credit loss to financial institutions. The appearance of credit loss makes it hard to know exactly how prevalent the true issue of synthetic identity theft is.
How Individuals Can Prevent Synthetic Identity Theft
One of the most important things an individual can do to prevent identity theft is to protect their personal information. Identity protection is vital for those that act as caretakers for children or the elderly. Individuals should be cautious of people and institutions seeking their personal data. With the prevalence of social media, we often let personal information slip unintentionally. It could be something as seemingly innocuous as acknowledging a birthday online or taking a picture that reveals a home address.
Strong security is essential as well. Keeping strong passwords and using a password manager can mean the difference between staying safe and an intrusion that reveals your social security number or some other piece of personal information. Even better, using biometric authentication, like facial recognition or fingerprint technology instead of passwords is significantly more secure. With synthetic identity theft, fraudsters don’t need much in order to formulate the groundwork for a fake identity. Utility bills, phone numbers, employment and health records… any number of legitimate documents obtained by deception can be the legitimizing piece of a fake identity.
How Businesses and Financial Institutions Can Prevent Synthetic Identity Theft
Biometric technology can be critical in stopping synthetic identity theft before it happens. Institutions that use biometric enrollment can authenticate drivers’ licenses and passports, and facial matching can ensure that someone presenting themselves as an individual is actually a person (and not a spoofed image). Where criminals could previously present the image of a faked driver’s license as part of an attempt to verify their illegitimate identity, biometric solutions can recognize that identification as illegitimate.
The best biometrics solutions support multi-modal identifiers like fingerprint identification, iris detection, facial recognition, and voice verification. These steps can go a long way in determining that the person claiming the identity is indeed a real individual instead of a fraudster that has collected images of an individual, or forged documents and voice recordings. Biometric solutions can also be integrated with background checks, credit checks, and sanctions screenings – significantly increasing the burden of proof for someone that is looking to create a new identity.
Synthetic identity theft is on the rise. Consumers’ continued expectations to do everything from shop to bank remotely means that institutions will increasingly need technology solutions to face the longstanding risk of identity theft. As individuals, awareness about who can obtain and use your personally identifiable information is key to protecting it. Consumers should ask the places they shop and bank what steps are in place to verify their identities, especially as new customers. The more you know, the better you can protect yourself.
If you are a business looking to protect your customers against synthetic identity fraud, contact us below.