Synthetic identity fraud: What banking software providers need to know Written on
Synthetic identity fraud is reshaping the landscape of banking fraud, presenting a growing and complex threat to financial systems worldwide. Criminals use a mix of real and fabricated information to create new identities, bypassing traditional security measures and causing significant losses.
For providers of banking software, this evolving threat represents both a challenge and an opportunity. As financial institutions look to their technology partners for robust solutions, the ability to deliver cutting-edge fraud prevention tools has never been more critical. By staying ahead of this crisis, banking software providers can not only help protect their clients but also position themselves as leaders in combating one of the most insidious crimes in the financial sector. Synthetic ID fraud isn’t just a banking problem—it’s a test of the systems that underpin the entire industry.
What is synthetic identity fraud?
Synthetic identity fraud is a highly sophisticated form of identity theft where criminals piece together fake personas using a mix of real and fabricated personal information. Fraudsters often combine a genuine Social Security number (stolen, of course) with a fake name, address, and birth date. In some cases, they go a step further, blending entirely made-up details with a stolen photo from social media. The result? A synthetic identity so convincing it can slip past traditional detection methods.
But how do they do it? With the abundance of personal data on the dark web—like email addresses, phone numbers, and even leaked government IDs—fraudsters have all the building blocks they need to craft identities that look real. Once the synthetic ID is created, they use it to:
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Open bank accounts
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Apply for credit
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Make purchases
They often rack up massive debts, cash out, and vanish without a trace, leaving financial institutions and businesses scrambling to pick up the pieces.
To make matters worse, the rise of deepfake technology is supercharging this type of fraud. Fraudsters can now create shockingly realistic personas that make distinguishing between real and fake even harder. The result? A new level of complexity for detecting and stopping these schemes.
The alarming numbers of synthetic identity fraud
Nothing speaks louder than numbers. Here are some jaw-dropping statistics that highlight the scale of synthetic identity fraud:
- Fastest-growing threat: Synthetic identity fraud is considered the fastest-growing type of financial crime in the United States, accounting for billions in losses annually.
- Massive losses in 2016: In 2016, synthetic identity fraud cost U.S. banks approximately $6 billion, with an average loss of $15,000 per account.
- Escalating costs by 2020: By 2020, losses due to synthetic identity fraud in the U.S. had escalated to $20 billion, indicating a significant increase over a four-year period.
- Major impact on credit issuers: Synthetic identity fraud accounts for 80% of all credit card fraud losses, posing a substantial threat to credit issuers.
Why banks and fintechs are the prime target?
Here’s why synthetic identity fraud thrives in the financial sector:
Easy entry points
Automated processes like online account openings and digital lending leave vulnerabilities for fraudsters to exploit.
High reward, low risk
Fraudsters can use synthetic IDs to gain access to large lines of credit. Since no "real" victim reports the fraud, banks often realize the scam too late.
Complex detection
Unlike traditional identity theft, synthetic identity fraud doesn’t immediately impact a consumer. This lack of red flags allows fraud to slip under the radar.
The repercussions of synthetic identity fraud ripple across the entire financial ecosystem. Banks bear the brunt through massive write-offs and diminished revenue from bad debts tied to fraudulent accounts. The costs of investigating, mitigating, and preventing these incidents soar, straining resources and budgets. Beyond the numbers, there’s a hidden toll: the erosion of trust.
When fraud cases come to light, customers question the ability of financial institutions to protect their data. This loss of confidence damages reputations, drives customers away, and makes it harder for banks to attract new business. Synthetic id fraud doesn’t just threaten the bottom line—it tests the relationship between banks and the customers they serve. Protecting that trust is no longer optional; it’s essential.
Fighting back: The solution
Banks need robust strategies to combat synthetic identity fraud, and banking software providers play a critical role in delivering those solutions. By integrating advanced fraud prevention technologies into their platforms, software providers can empower financial institutions to stay one step ahead of fraudsters. Here’s what works:
- Biometric verification: Incorporating tools like biometric face verification ensures that real people—not synthetic identities—are behind transactions.
- AI-powered fraud detection: Advanced algorithms that perform real-time analysis can identify and flag common attack vectors, such as video injection or deepfakes.
- Stronger KYC policies: Enhancing Know Your Customer processes makes it significantly harder for synthetic identities to penetrate financial systems.
By incorporating these strategies into their platforms, banking software providers can not only help their clients mitigate losses but also differentiate themselves in a competitive market by delivering proactive, future-proof solutions.
Stay ahead of synthetic ID fraud with advanced banking solutions
Equip your financial institution clients with the tools they need to combat synthetic identity fraud effectively. Our cutting-edge solutions—featuring AI-powered fraud detection, biometric verification, and enhanced KYC capabilities—integrate seamlessly into your software, giving banks and fintechs the confidence to protect their assets and customer trust.
📢 Take action now: Schedule a free consultation to learn how to deliver fraud prevention strategies that set your platform apart in a competitive market.
