A Modern-Day Frankenstein: Synthetic Identity Fraud

by Ken Meiser

When Victor Frankenstein set out to fashion a new life form with body parts he gathered from multiple corpses, he was unaware of the damage his creation would later inflict on innocent people.1 While Frankenstein’s monster was a fictional character, today there is a real threat that uses “mad scientist” methodologies and likewise causes great harm—“Frankenstein identities.”

These modern-day “Frankensteins”, more commonly known as synthetic identities, are created by cobbling together bits and pieces of personally identifiable information from real people to create fake identities that can be used to apply for financial products and other services.

Unfortunately, we are in a new era of synthetic identity fraud where fake identities are not always created using valid information stolen from several different consumers. Today’s fraud is a different type of monster: fake identities composed of invalid information with no ties to a known consumer.

The evolution in synthetic identity fraud has occurred in part due to the Social Security Administration’s (SSA) randomization of social security numbers (SSNs). This new approach to SSN issuance was designed to provide higher safeguards for the public and reduce the incidence of fraud, but it has made it more difficult for lenders and service providers to identify a fabricated SSN.

In the randomized era, it is easier for fraudsters to create a synthetic identity using a “new” SSN because the SSA no longer uses a regimented, geographical approach for determining the first five digits of newly issued SSNs (known as the area and group numbers). As a result, current fraud detection techniques are not able to distinguish between legitimately issued numbers and fictitious numbers being fraudulently asserted.

This new breed of synthetic identities is one of the most difficult fraud threats that institutions face today and it is becoming harder to stop.2 Once an identity is established, a fraudster can develop a positive credit history over time—appearing as a new-to-credit consumer. The longer the identity is cultivated, the harder it becomes to categorize the identity as fraudulent. These fraudsters can operate for years undetected, building higher credit limits at numerous institutions, before busting out across their credit lines and disappearing without a trace.

With no identifiable perpetrator or self-reporting victim, enterprises bear the brunt of the damage caused by synthetic fraud; banks lost six billion dollars in 2016 alone.3

As this modern-day monster evolves, the scientists at ID:A Labs are developing breakthrough insights to create a solution to combat this growing problem. For more information, download ID Analytics’ recent white paper The Synthetic Epidemic: Understanding Identity Fraud after SSN Randomization.

To learn how ID Analytics’ can help support your institution’s fraud management strategies, please contact us. We look forward to helping your organization uncover the “fraudulent Frankensteins” lurking in your portfolios.

 

1. Shelley, Mary. Frankenstein, Prestwick House Literary Touchstone Classics, 2005. Google books. Web 26 Oct. 2017. https://books.google.com

2. https://www.americanbanker.com/news/identity-fraud-back-with-a-vengeance-harder-to-stop

3. http://markets.businessinsider.com/news/stocks/Synthetic-Identity-Fraud-Cost-Banks-6-Billion-in-2016-Auriemma-Consulting-Group-1002222563