These 3 Factors Contributed to the Rise of Synthetic Identity Fraud

Visual representation of synthetic identity fraud.

Synthetic Identity Fraud is a blend of genuine and false data bad actors use to gain unauthorized access to financial services like credit, loans, and merchant accounts. Read further to understand the unintended consequences of automation, randomization of social security numbers, and large-scale data breaches. Then, download our 20-page introductory guide on Synthetic Identity Fraud.


What Is Synthetic Identity Fraud?

Synthetic identity fraudsters use progressively more sophisticated tactics that combine counterfeit credentials with real identities — creating synthetic identities that appear more genuine than wholly manufactured identities. Criminals often leverage real yet unlinked social security numbers (SSNs) along with counterfeit or unrelated personally identifiable information (PII).

Synthetic identity fraud is particularly troublesome in the payments space because it is often used to create merchant accounts that are used to facilitate transaction laundering. For payments companies engaged in seamless onboarding, it’s important to have safeguards in place to look for this kind of fraud.


Three Factors That Have Contributed to The Rise Of Synthetic Identity Fraud

Although identity fraud is nothing new, synthetic identity fraud has surged in recent years as a result of technological advancement and regulatory changes, leading to unintended but serious ramifications.


1. Automation in Financial Services

Fraudsters create a multitude of accounts with relative ease and speed due to automated technology. Software programs can easily generate thousands of email addresses and other information needed to populate a merchant application. The advent of artificial technology (AI) may make this even easier with even more convincing PII.


2. Randomization of Social Security Numbers (SSNs)

Effective since 2011, a new approach to creating SSNs by the Social Security Administration has aimed to increase public security by making it harder to predict a person’s SSN. However, this new method inadvertently simplified the mass generation of synthetic identities by making it more challenging to verify SSNs.


3. Large-Scale Data Breaches

Massive data leaks, such as the Equifax breach of 2017 and the First American Financial Corporation breach in 2019, have exposed a plethora of consumer data, now accessible on the dark web at nominal prices. These easily available personal details have provided a fertile ground for the growth of synthetic identity fraud.


Congress Took Action To Protect Consumers

In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was introduced, instructing the SSA to facilitate the verification of SSNs by certified financial institutions. (Sec. 215) “The Social Security Administration (SSA) is directed to develop a database to facilitate the verification of consumer information upon request by a certified financial institution.”


Read This Comprehensive Introduction to Synthetic Identity Fraud

Are you a payment service provider concerned about synthetic identity fraud? Download our comprehensive introduction and you’ll learn:

  • How synthetic identity fraud is evolving
  • Methods of synthetic account creation
  • How synthetic accounts are "aged"
  • Risks and characteristics of synthetic accounts
  • Mitigating the risks of synthetic accounts
  • A real case study and more!