The convergence of fast digitization and volatile economic conditions has spawned a fertile breeding ground for fraudsters to flourish. Startling statistics from the State of Fraud Benchmark Report indicate that financial institutions have fleeced off a staggering $500k due to fraud in 2022 alone. This worrisome trend beckons a closer look into the lurking dangers of fraud and how it could impact individuals and institutions alike.
What is Synthetic Identity Fraud, and How Does it Work?
Synthetic identity fraud is indeed becoming increasingly popular among fraudsters. This type of fraud involves creating a new identity by combining natural and fake information, typically using an actual Social Security number that belongs to someone else. The fraudster will typically use the exact Social Security number, phony name, date of birth, and other identifying information to create a new, synthetic identity. They may then use this identity to open new credit accounts, take out loans, or engage in fraud. Unlike other forms of fraud, synthetic fraud is challenging for banks and credit agencies to detect. It involves the creation of an entirely new identity that may not match anyone else’s information, while the perpetrator using someone else’s identity without their knowledge or consent involves impersonation. There may not be any obvious red flags to indicate that the identity is fake. As a result, financial institutions may not be able to catch fraudsters using their synthetic identities to open accounts and engage in fraudulent activity for months or even years. Reports say that synthetic identity fraud tops the list of fraud-related concerns among decision-makers in financial institutions.
Top Fraud Concerns
How to detect and defend yourself
To detect and defend against synthetic fraud, businesses can use advanced technologies such as analytics and machine learning algorithms to analyze data and identify patterns or anomalies that suggest fraudulent activity. They can also develop a thorough onboarding process, regularly monitor customer activity, and collaborate with industry peers to stay ahead of evolving tactics. A multi-layered approach that includes these strategies can help institutions significantly reduce the risk of synthetic fraud.
There are Several Risks Associated with Synthetic Fraud Including
Compliance Violation: If failed to detect fraud or adequately protect customers sensitive information, leading potential fines or legal actions.
Customer Churn: Synthetic fraud can lead to customers becoming victims of identity theft, causing them to lose trust in the business and potentially switch to competitors.
Reputation Damage: Synthetic fraud can damage a victim’s reputation and affect their ability to secure future employment.
Increased Operational Cost: Synthetic fraud detection requires advanced technologies, which is expensive to implement and maintain, leading to increased operational cost.
Financial Loss: Synthetic fraudsters can open accounts, apply for loans or purchase goods using fraudulent identities causing financial loss to businesses.
Tips to Prevent Synthetic Fraud
Data analytics, AI/ML techniques, and automation can significantly prevent synthetic identity fraud by analyzing vast amounts of data, identifying patterns, and detecting anomalies in customer behavior.
Data analytics can help identify patterns of behavior that may indicate fraud, such as frequent changes to personal information or unusual account activity. AI/ML techniques can analyze customer data to detect anomalies, flag suspicious transactions, and identify fraudulent accounts Businesses can use these techniques to see and prevent synthetic identity fraud in real-time, which can help reduce losses and minimize the impact on their customers.
Automation can also help prevent synthetic identity fraud by streamlining identity verification and authentication processes. For instance, automated systems can check customer data against multiple databases to verify identities and detect inconsistencies. This process can reduce the risk of human error and increase identity verification accuracy.
Businesses can implement strict security protocols, such as multi-factor authentication and regular security audits, to reduce the risk of fraud.
Staying Ahead of the Curve
In conclusion, synthetic fraud continues to be a significant challenge for lending organizations, with the potential to cause substantial economic losses and reputational damage. While many organizations have implemented various measures to detect and prevent synthetic fraud, fraudsters continue to find new ways to evade detection. As technology evolves, we will see more sophisticated forms of synthetic fraud emerge. Therefore, financial organizations must remain vigilant and invest in advanced fraud prevention technologies to stay ahead of the curve. Preventing and addressing synthetic fraud requires collaboration between individuals, businesses, and government agencies. The key is to be proactive and stay up to date with the latest trends and technologies in fraud prevention.
