The impact of synthetic identities on businesses Written on 18 Mar 2024

TL;DR

Synthetic identity fraud involves creating fake identities (often mixing real and false data) to deceive financial institutions during onboarding and KYC processes.
The rise of Generative AI has introduced sophisticated deepfakes, turning this fraud into a critical and urgent business threat.
This fraud leads to the opening of fraudulent accounts, causing increased credit risk, significant financial losses, and an irreversible erosion of customer trust.
Traditional KYC systems struggle to verify these complex synthetic identities, leading to "false positives" that mistakenly flag real customers.
Businesses must urgently upgrade their defenses by investing in advanced technologies (like biometrics and machine learning) and implementing a holistic strategy to combat cross-channel synthetic identity fraud.

Synthetic identity fraud is a major headache for businesses, especially when they need to check a customer's identity (KYC) and during the sign-up process. This type of fraud involves creating completely fake identities or mixing real and fake information to trick financial institutions.

The rise of AI has made things worse. Deepfakes, which used to be only in movies, are now a real tool used by criminals. If companies don't act fast, the consequences will be severe. Every industry must understand and tackle this threat immediately. Keeping customer trust and, ultimately, keeping the business afloat, depends on actively fighting this battle.

The problem with fake identities

Identities composed of a mix of real and fake details are tough for standard KYC systems to check accurately. Fraudsters might use stolen or fake information, like Social Security numbers, to create these fake people—what we call synthetic identities—that look like real customers.

Fraudulent account openings

Synthetic identity fraud can lead to criminals opening fake accounts and getting services from banks without them knowing. Crooks often find and exploit weaknesses in online sign-up processes to set up a false identity and access financial services.

To fight synthetic identity fraud, financial institutions must improve their KYC systems and sign-up processes, which often means higher costs. They need to invest in advanced technology and hire more staff to keep up with the changing ways fraudsters operate.

Increased risk and loss of trust

Synthetic identity fraud increases the risk for financial institutions. Fraudsters can build a credit history using the fake identity, then take out loans or credit lines and disappear without paying. This causes banks to lose significant money, hurting their profits.

Also, when synthetic identity fraud is common, customers worry about the security of their personal information, and trust in the business is damaged forever. Sometimes, the complex task of spotting fake identities causes KYC systems to mistakenly flag real, legitimate customers as potential risks. This is called a "false positive" and leads to unhappy customers and frustrating delays in signing up.

Fraud across multiple channels

Fraudsters use different ways of interacting with a business—like online and in person—to create and use their synthetic identities. To combat synthetic identity fraud, a complete strategy is needed that looks at every point where a customer interacts with the business.

Financial institutions must constantly update and improve their KYC systems. They need to use high-tech tools like biometrics, machine learning, and data analysis to better check identities and spot fraud. Working together across the industry and using standard security measures are also key to building strong protection against synthetic identity fraud.

Ready to fortify your defenses against deepfakes and fraud?

The integrity of your business hinges on proactive protection. Don't let advanced fraud techniques, like synthetic identity fraud and deepfakes, compromise your security or erode customer trust.

YouLive provides the ultimate defense, built on trusted, certified standards, and engineered for effortless integration.

Advanced detection: Get ISO-compliant liveness and injection detection, including vital protection against deepfakes (CEN/TS 18099 compliant).
Developer-Ready: Integrate in minutes using our SDKs for Web, iOS, and Android, with blazing-fast $<1s$ API latency for a friction-free user experience.
Private by design: Protect your customers with end-to-end encryption and a strict policy of no storage of biometrics or PII, ensuring compliance with GDPR, CCPA, and KYC/AML regulations.
Fair verification: Benefit from equal, reliable accuracy across all skin tones, genders, and ages, thanks to bias reduction built into our model.