Synthetic identity fraud is changing how banks fight crime. It’s a major and growing problem for financial systems everywhere. Criminals create new, fake people by mixing a bit of real information with a lot of made-up details. This allows them to easily trick older security systems and steal huge amounts of money.

For companies that make banking software, this new threat is both a major challenge and a big chance. Banks are desperate for powerful tools to stop this. Your ability to offer cutting-edge fraud prevention is now more important than ever. By beating the synthetic identity fraud crisis, you can protect your clients and become a market leader in fighting one of finance's most sneaky crimes. This isn't just a banking issue—it's a critical test for the entire industry's foundation.

What exactly is synthetic identity fraud?

Synthetic identity fraud is an extremely clever type of identity theft. Fraudsters create entirely new, fake people (or “synthetic identities”) by combining small pieces of real personal data with completely false information.

Here’s how they build a fake person:

• They often start with a real Social Security number (which is usually stolen).

• They then add a fake name, address, and birth date.

• Sometimes, they even use a stolen photo from social media and blend it with completely made-up details.

The result is a convincing "synthetic identity" that traditional security checks often cannot spot. They use information found easily on the dark web—like email addresses, phone numbers, and even leaked ID details—as building blocks.

Once the fake ID is ready, criminals use it to:

1. Open bank accounts.

2. Apply for loans or credit cards.

3. Make major purchases.

They quickly run up massive debt, take the money, and disappear without a trace, leaving financial institutions to deal with the huge losses. To make matters worse, advanced tools like deepfake technology are now being used to create incredibly realistic personas, making the job of spotting this fraud much harder.

The alarming numbers of synthetic identity fraud

The scale of this crime is staggering. Here are key facts that show the true cost of synthetic identity fraud:

• Fastest-Growing Threat: It’s considered the fastest-growing financial crime in the U.S., costing billions of dollars every year.

• Massive Losses: By 2020, losses from synthetic identity fraud in the U.S. had shot up to an estimated $20 billion.

• Credit Card Impact: This type of fraud is responsible for 80% of all credit card fraud losses, making it a primary threat to credit issuers.

Why are banks and fintechs easy targets?

The financial sector is the perfect place for synthetic identity fraud to flourish because of three main reasons:

• Easy online entry: Automated processes like online account openings and digital loan applications create weak points that fraudsters can exploit.

• High reward, low risk: Fraudsters can use these fake IDs to get access to large lines of credit. Since there is no "real" person to report the crime, banks often don't notice the scam until it's too late.

• Difficult to detect: Unlike traditional identity theft, synthetic identity fraud doesn't immediately hurt a real consumer. This lack of an immediate "red flag" allows the fraud to go unnoticed for months or even years.

The fallout from synthetic identity fraud is felt across the whole financial system. Banks face huge write-offs and rising costs for investigation and prevention. Crucially, the crisis hurts trust. When fraud happens, customers begin to doubt their bank's ability to protect their data, damaging the bank's reputation and driving business away. Protecting customer trust is now non-negotiable.

Fighting back: the solution for synthetic identity fraud

Banks need strong defenses, and banking software providers are key to delivering them. By building advanced fraud prevention tools right into your platforms, you empower financial institutions to stay ahead of the criminals. Sophisticated algorithms can analyze data in real-time to spot common attack patterns, including the use of video injection and deepfakes.

By adding these defenses, banking software providers can not only help their clients reduce massive losses but also stand out in the market by offering proactive, future-proof solutions against synthetic identity fraud.

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