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Detecting Synthetic Identities: The Best Offense is a Good Defense

Sometimes, the best offense is a good defense. That’s certainly true when it comes to detecting synthetic identities, which by their very nature become harder to find the longer they’ve been around.

To launch an offense against synthetic identity fraud, you need to defend yourself from it at the top of your new customer funnel. Once fraudsters embed their fake identity into your portfolio, they become nearly impossible to detect.

The Challenge

Synthetic identity fraud is the fastest-growing type of financial crime in the United States. The cost to businesses is hard to determine because it’s not always caught or reported, but the amounts are staggering. According to the Aite Group, it was estimated to total at least $820 million in 2017 and grow to $1.2 billion by 2020.

This type of theft begins when individual thieves and large-scale crime rings use a combination of compromised personal information—like unused social security numbers—and fabricated data to stitch together increasingly sophisticated personas.

These well-crafted synthetic identities are hard to differentiate from the real deal. They often pass Know Your Customer, Customer Identification Program and other onboarding checks both in person and online. This puts the burden on you to develop new defense strategies or pay the price.

Additionally, increasing pressure to grow deposits and expand loan portfolios may coincide with the relaxation of new customer criteria, allowing even more fraudsters to slip through the cracks.

Because fraudsters nurture their fake identities by making payments on time and don’t exhibit other risk factors as their credit limits increase, detecting synthetic identities becomes nearly impossible, as does defending against them.

How This Impacts Your Bottom Line

Synthetic identity theft is sometimes viewed as a victimless crime, since no single individual has their entire identity compromised. But it’s not victimless. When undetected fraudsters finally max out their credit lines before vanishing, the financial institution is usually stuck footing the bill.

These same fraudsters know that many financial institutions will automatically settle fraud claims below a specific threshold. They capitalize on this by disputing transactions just below it, keeping the goods or services they purchased without paying.

Fraudsters can double-dip on a single identity bust-out by claiming identity theft to have charges removed or by using fake checks to pay off balances before maxing out the credit again and defaulting.

The cost of not detecting synthetic identities doesn’t stop at the initial loss. It flows outward like ripples, including:

  • Damage to your reputation as a trusted organization
  • Fines for noncompliance with Know Your Customer
  • Account opening and maintenance costs that are not recouped as they would be with a legitimate customer
  • Mistakenly classifying fraudsters as bad debt write offs
  • Monetary loss from fraudsters’ unpaid balances
  • Rising collections costs as you try to track down people who don’t exist
  • Less advantageous rates for customers in the future as your margins grow thinner

These losses add up, continuing to impact your bottom line over and over again.

Defensive Strategies

So what can you do?

Tools like eCBSV that will assist with detecting synthetic identities are coming but they’re not here yet. And once they’re in place, they won’t be an instant fix.

Implementing an overly cautious fraud detection strategy on your own will cause a high number of false positives, meaning you miss out on revenue from genuine customers.

Your best defense requires finding a partner to help you implement a multi-layered fraud detection strategy throughout the customer lifecycle. Detecting synthetic identities entails looking at more than a single factor (like length of credit history). You need to aggregate multiple data sets and connect multiple customer characteristics to effectively defend against synthetic identity fraud.

Experian’s synthetic identity prevention tools include Synthetic Identity High Risk Score to incorporate the history and past relationships between individuals to detect anomalies. Additionally, our digital device intelligence tools perform link analyses to connect identities that seem otherwise separate. We help our partners pinpoint false identities not associated with an actual person and decrease charge offs, protecting your bottom line and helping you let good customers in while keeping false personas out.

Find out how to get your synthetic identity defense in place today.