Loading...

Solving the Fraud Problem: What is Synthetic Identity Fraud?

Published: January 18, 2021 by Chris Ryan

Recently, I shared articles about the problems surrounding third-party and first-party fraud. Now I’d like to explore a hybrid type – synthetic identity fraud – and how it can be the hardest type of fraud to detect.

What is synthetic identity fraud?

Synthetic identity fraud occurs when a criminal creates a new identity by mixing real and fictitious information. This may include blending real names, addresses, and Social Security numbers with fabricated information to create a single identity.

Once created, fraudsters will use their synthetic identities to apply for credit. They employ a well-researched process to accumulate access to credit. These criminals often know which lenders have more liberal identity verification policies that will forgive data discrepancies and extend credit to people who appear to be new or emerging consumers. With each account that they add, the synthetic identity builds more credibility.

Eventually, the synthetic identity will “bust out,” or max out all available credit before disappearing. Because there is no single person whose identity was stolen or misused there’s no one to track down when this happens, leaving businesses to deal with the fall out.

More confounding for the lenders involved is that each of them sees the same scam through a different lens. For some, these were longer-term reliable customers who went bad. For others, the same borrower was brand new and never made a payment. Synthetic identities don’t appear consistently as a new account problem or a portfolio problem or correlate to thick- or thin-filed identities, further complicating the issue.

How does synthetic identity fraud impact me?

As mentioned, when synthetic identities bust out, businesses are stuck footing the bill.

Annual SIF (synthetic identity fraud) charge-offs in the United States alone could be as high as $11 billion. – Steven D’Alfonso, research director, IDC Financial Insights1

Unlike first- and third-party fraud, which deal with true identities and can be tracked back to a single person (or the criminal impersonating them), synthetic identities aren’t linked to an individual. This means that the tools used to identify those types of fraud won’t work on synthetics because there’s no victim to contact (as with third-party fraud), or real customer to contact in order to collect or pursue other remedies.

Solving the synthetic identity fraud problem

Preventing and detecting synthetic identities requires a multi-level solution that includes robust checkpoints throughout the customer lifecycle.

During the application process, lenders must look beyond the credit report. By looking past the individual identity and analyzing its connections and relationships to other individuals and characteristics, lenders can better detect anomalies to pinpoint false identities.

Consistent portfolio review is also necessary. This is best done using a risk management system that continuously monitors for all types of fraudulent activities across multiple use cases and channels. A layered approach can help prevent and detect fraud while still optimizing the customer experience.

With the right tools, data, and analytics, fraud prevention can teach you more about your customers, improving your relationships with them and creating opportunities for growth while minimizing fraud losses.

To wrap up this series, I’ll explore account takeover fraud and how the correct strategy can help you manage all four types of fraud while still optimizing the customer experience. To learn more about the impact of synthetic identities, download our “Preventing Synthetic Identity Fraud” white paper and call us to learn more about innovative solutions you can use to detect and prevent fraud.

Contact us Download whitepaper

1Synthetic Identity Fraud Update: Effects of COVID-19 and a Potential Cure from Experian, IDC Financial Insights, July 2020

Related Posts

In today’s digital lending landscape, fraudsters are more sophisticated, coordinated, and relentless than ever. For companies like Terrace Finance — a specialty finance platform connecting over 5,000 merchants, consumers, and lenders — effectively staying ahead of these threats is a major competitive advantage. That is why Terrace Finance partnered with NeuroID, a part of Experian, to bring behavioral analytics into their fraud prevention strategy. It has given Terrace’s team a proactive, real-time defense that is transforming how they detect and respond to attacks — potentially stopping fraud before it ever reaches their lending partners. The challenge: Sophisticated fraud in a high-stakes ecosystem Terrace Finance operates in a complex environment, offering financing across a wide range of industries and credit profiles. With applications flowing in from countless channels, the risk of fraud is ever-present. A single fraudulent transaction can damage lender relationships or even cut off financing access for entire merchant groups. According to CEO Andy Hopkins, protecting its partners is a top priority for Terrace:“We know that each individual fraud attack can be very costly for merchants, and some merchants will get shut off from their lending partners because fraud was let through ... It is necessary in this business to keep fraud at a tolerable level, with the ultimate goal to eliminate it entirely.” Prior to NeuroID, Terrace was confident in its ability to validate submitted data. But with concerns about GenAI-powered fraud growing, including the threat of next-generation fraud bots, Terrace sought out a solution that could provide visibility into how data was being entered and detect risk before applications are submitted. The solution: Behavioral analytics from NeuroID via Experian After integrating NeuroID through Experian’s orchestration platform, Terrace gained access to real-time behavioral signals that detected fraud before data was even submitted. Just hours after Terrace turned NeuroID on, behavioral signals revealed a major attack in progress — NeuroID enabled Terrace to respond faster than ever and reduce risk immediately. “Going live was my most nerve-wracking day. We knew we would see data that we have never seen before and sure enough, we were right in the middle of an attack,” Hopkins said. “We thought the fraud was a little more generic and a little more spread out. What we found was much more coordinated activities, but this also meant we could bring more surgical solutions to the problem instead of broad strokes.” Terrace has seen significant results with NeuroID in place, including: Together, NeuroID and Experian enabled Terrace to build a layered, intelligent fraud defense that adapts in real time. A partnership built on innovation Terrace Finance’s success is a testament to what is  possible when forward-thinking companies partner with innovative technology providers. With Experian’s fraud analytics and NeuroID’s behavioral intelligence, they have built a fraud prevention strategy that is proactive, precise, and scalable. And they are not stopping there. Terrace is now working with Experian to explore additional tools and insights across the ecosystem, continuing to refine their fraud defenses and deliver the best possible experience for genuine users. “We use the analogy of a stream,” Hopkins explained. “Rocks block the flow, and as you remove them, it flows better. But that means smaller rocks are now exposed. We can repeat these improvements until the water flows smoothly.” Learn more about Terrace Finance and NeuroID Want more of the story? Read the full case study to explore how behavioral analytics provided immediate and long-term value to Terrace Finance’s innovative fraud prevention strategy. Read case study

Published: September 3, 2025 by Allison Lemaster

BIN attacks are a growing threat in today’s digital payments ecosystem. Learn how to mitigate these attacks to reduce losses.

Published: August 27, 2025 by Theresa Nguyen

Experian is proud to be a Thought Leadership Sponsor at this year’s Federal Identity Forum & Expo. Meet us on site at FedID!

Published: August 1, 2025 by Kim Le

Subscribe to our blog

Enter your name and email for the latest updates.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Subscribe to our Experian Insights blog

Don't miss out on the latest industry trends and insights!
Subscribe