Synthetic identity theft in finance is referred to a type of fraud which involves the use of a fictitious identity.
Identity thieves create new identities by using a combination of real and fabricated information. Fraudsters use this fictitious identity for obtaining credit, opening deposit accounts and obtaining driver’s licenses and passports.
This type of theft has emerged as a major fraud activity over the last decade. The exponential growth of synthetic identity theft in finance has caused distressing consequences in the financial industry. Typically, fraudsters use a real Social Security Number (SSN) and pair it with a username not associated with that number. Fraudsters focus on seeking SSNs that are not actively being used, such as those of deceased people or children. In some cases, an identity fraudster may create a completely fake identity with a non-existing SSN, name, and address. This is categorized as synthetic identity fraud since there is no theft involved.
Synthetic frauds are not confined to just the banking industry, there are several other crimes committed under fabricated identities. Researchers have discovered that synthetic identities are used for criminal activity in both wireless and financial industries. As these synthetic identities are not used for financial gain, they are much more difficult to discover since there is no report of credit loss or fraud. There have also been recent, high-profile cases of terrorist organizations exploiting the use of synthetic identities to serve their ideological purposes. Synthetic identities provide an avenue for terrorists to not only distribute funding but to also obtain valuable resources, such as cell phones and airplane tickets for individuals having intent on more than just financial harm.
The rise of synthetic identity theft indicates that financial institutions are not authenticating the identities of credit applicants. Instead, they are only authenticating the SSN by comparing it to the date of birth, rather than ensuring that the number is issued to the correct person. This means that financial institutions are not using all tools available to them to prevent identity theft.
In synthetic fraud prevention, the network holds significance. Cross company and cross-industry data sharing are incredibly important for identifying anomalies originating from different sources and shutting them down. Fraudsters imitating another person’s identity are sophisticated in using stolen credentials to change account information. By changing an email address, these fraudsters are able to send a lost credit card request, or they can gain access to a cell phone account or suppress statements. Non-monetary changes are easier to make over a period of time and they often don’t raise triggers at the bank. Banks and other financial institutions that are dealing with fraud must remember that it is a continual action/reaction environment. If you shut down one of their behaviours, fraudsters may simply move to another. Fraudsters will test all possible channels to see where they can find loopholes and get easy entry points. To counter these attacks, financial institutions must focus on implementing stronger defenses across multiple channels. Multi-factor authentication is one of the most effective methods for preventing synthetic identity fraud.
By implementing enhanced identity detection tools early in an application process, financial institutions can receive an additional benefit while combating these invisible personas.
Naveen is the Founder and CEO of Allerin, a software solutions provider that delivers innovative and agile solutions that enable to automate, inspire and impress. He is a seasoned professional with more than 20 years of experience, with extensive experience in customizing open source products for cost optimizations of large scale IT deployment. He is currently working on Internet of Things solutions with Big Data Analytics. Naveen completed his programming qualifications in various Indian institutes.