Synthetic Fraud Expected to Rise Significantly in 2023-24: Causes and Concerns
The digital age has brought immense convenience. With a few taps on our phones, we can purchase goods, transfer money, and access services. But where there are transactions, there are also those looking to game the system. As a result, digital fraud has exploded as more of our financial lives move online.
And there’s a particularly insidious type of fraud that’s expected to rise significantly in 2023-2024: synthetic identity fraud. This is when cunning fraudsters don’t just steal your identity – they build entirely new fake identities using real people’s information. Once they have these “synthetic” identities, they can open fraudulent accounts and make purchases under a name that passes all the checks.
It’s a scary development for those of us who prefer the ease of digital payments. We want the convenience without the risk of being targeted by these sophisticated schemes. So what exactly is synthetic fraud and why is it poised to skyrocket? Let’s break it down.
What is Synthetic Fraud?
Synthetic identity fraud is when criminals create new identities using real people’s information – like Social Security numbers, names, and addresses – combined with made-up details. They use these fabricated identities to open credit cards, take out loans, or make purchases.
A shocking 46% of organizations faced synthetic identity fraud last year. This number is only expected to grow as more user data gets leaked online for fraudsters to exploit.
Unlike typical identity theft, the person whose information is used usually has no knowledge of the synthetic ID. The fraudster mixes and matches multiple people’s details to form an identity that looks legit and passes verification checks. They’ll use one person’s SSN, another person’s address, someone else’s birthday, and so on. The result is an identity “built” from data stolen from unsuspecting victims.
The fraudster then takes their time to strengthen the fake ID by gradually building up a credit profile. This involves activities like applying for low-limit credit cards to establish a credit history. Once the synthetic ID can pass credit checks and authentication protocols, the fraudster uses it to open new accounts or make big purchases.
Why Will Synthetic Fraud Increase?
The global pandemic resulted in a massive spike in fraud cases, as both businesses and consumers were forced to go digital almost overnight. Criminals seized the opportunity and the data of many unsuspecting victims during this time of upheaval.
Large amounts of personally identifiable information (PII) were stolen in 2020, which fraudsters can now use to build synthetic identities. It takes time to construct identities and establish credit histories before exploiting them. So much of the PII stolen during the pandemic is expected to surface in 2023-2024, leading to a rise in synthetic identity fraud.
Advances in identity verification and authentication protocols have also made it harder to use stolen identities outright. As a result, fraudsters now invest time in creating synthetic identities that may stand a better chance at passing stricter verification checks. The payoff is lucrative if they succeed.
Common Types of Synthetic Fraud
Synthetic identities can be used to perpetrate many kinds of fraud once fraudsters have established their false credentials. Some of the most common types of synthetic fraud include:
- Employment fraud: Creating a fake work history and income to qualify for loans or credit cards.
- Benefits fraud: Applying for government benefits using a synthetic ID.
- Credit card fraud: Opening new credit cards to make purchases with no intention of paying.
- Loan fraud: Taking out loans such as home, auto, or student loans with no plans for repayment.
- Real estate fraud: Buying property using good credit built under a fake ID and then disappearing.
- Tax fraud: Filing tax returns using synthetic IDs to claim credits and refunds.
- Medical insurance fraud: Obtaining insurance using false identities and billing for non-existent medical care.
Concerns and Impact of Rising Synthetic Fraud
The increase in synthetic identity fraud raises profound concerns due to the broad impact it can have. Both individuals and institutions stand to suffer significantly. Some of the main areas of concern include:
Financial Loss to Individuals and Institutions
Synthetic identity fraud leads to direct financial loss for individuals whose information was used unknowingly as well as the institutions defrauded. As this type of fraud rises, cumulative losses will be in the billions. Both consumers and businesses will suffer the economic impact.
Erosion of Trust
As synthetic fraud becomes more pervasive, it may erode consumer trust in financial institutions, online transactions, and digital systems overall. People will become wary of sharing information or making purchases online if fraud is rampant. Businesses will also have a harder time distinguishing legitimate customers from sophisticated fake identities. This breakdown in trust can dampen economic activity.
Strain on Law Enforcement and Regulators
Synthetic fraud is harder for authorities to detect and investigate compared to typical identity theft. The victims are often unaware their information was used. Government agencies will need more advanced technologies and skill sets to spot and shut down synthetic fraud rings. As with other cybercrimes, laws and policies will play catch up.
Beyond economic effects, synthetic fraud can disproportionately affect marginalized communities with lower financial literacy and fewer resources to fight back. Widespread fraud can worsen inequality. On an individual level, having your identity misused can lead to emotional distress. As synthetic fraud rises, we must consider both the monetary and social impact.
The rise of synthetic ID fraud is definitely cause for concern. It seems like every year, scammers come up with craftier ways to steal our information and game the system. And once they build up these fake identities, the damage can be done before we even realize what’s happened.
As such, consumers must be extra cautious about who they share personal information with, especially online. Guard your SSN, birthdate, address – anything that could help a fraudster construct a fake identity with your data. Also, keep a close watch on your credit report and bank statements. If you see any unfamiliar accounts or charges, get on it quickly.
Businesses need to step up fraud detection too. AI and analytics tools can help spot suspicious patterns early. Staff training is key as well so they can identify red flags.
It’s a shame we have to be so vigilant just to protect our digital lives and money these days. But being in the know about the latest scams can help us all avoid being victimized by these complex synthetic identity frauds. Stay sceptical and speak up if you spot shady activity. We can get ahead of the problem through awareness and safe practices.