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Synthetic Identity Fraud

What is synthetic identity fraud?

Synthetic identity has been a growing type of fraud in recent years, which has led to numerous scams throughout the world.  As one of the fastest-growing financial crimes in the U.S., synthetic identity fraud has started to raise concerns for regulators, following the tremendous losses it has caused. According to a 2019 white paper from the U.S. Federal Reserve, synthetic identity fraud cost 6 billion USD for U.S. lenders, and accounted for 20% of credit losses in 2016. The Federal Trade Commission defined it in 2021 as “the use of a combination of personally identifiable information (PII) to fabricate a person or entity in order to commit a dishonest act for personal or financial gain.”

So specifically, synthetic identity fraud is a type of fraud where the fraudster harvests different kinds of information, from social security numbers (SSNs) to personal information, in order to create a fake new identity that appears as legitimate. Fraudsters often mix valid and fake information (postal addresses, SSNs, fake name, and personal identifying information), although that information altogether does not combine and match to one person in particular. (see Fake ID Fraud)

The relative increase of records breaches facilitated access to personal information for fraudsters, who easily acquired them on dark web marketplaces. Thus, it contributed to the rise of such frauds. Ironically, synthetic identity fraud has also developed because of security improvements in credit card chips, obliging criminals to find other ways to earn money online.

Synthetic identities are used to open fraudulent accounts to later apply for a loan, bank drop, subscribe to a credit card to make purchases, or defraud financial institutions and governmental agencies. Other common uses include credit repair, payment default schemes, or Money Laundering. Synthetic identity fraud is overwhelmingly popular in the U.S. as companies often depend on SSNs to verify individuals’ identities, compared to other countries which benefit from centralized registries.

Do you have more questions regarding synthetic identity fraud?

How does synthetic identity fraud work? 

How to identify and prevent synthetic identity fraud as a financial institution 

Trend Report: Identity Fraud 2022.

Learn more about synthetic identity fraud and other fraud and identity theft trends in our Trend Report: Identity Fraud 2022.

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