Synthetic Identities: Part Three, A Fraud vs. Credit Risk Perspective

by Kevin King

Kevin King

Our previous posts examined the different types of synthetic identity fraud, including manipulated and manufactured, which vary in construction, intent and degree of financial harm. Part three of our series examines how the diversity in synthetic identity behavior impacts the ability of risk management strategies to identify and stop this threat. It also provides insight into whether this is a fraud or credit problem, or both.

Synthetic identities present a dynamic and multifaceted challenge, which is incredibly difficult for enterprises to pinpoint during account opening. In addition to the different types, the speed with which synthetic identities access and abuse credit varies. Fraudsters may be looking for a quick way to cash in and show up as first-pay defaults or never-pays. Or they may build up a credit profile slowly over time and bust out two years later. These inconsistencies in behavior make it unclear if the accounts are fraudulent or a result of credit abuse.

In our work with top financial institutions, we find that they have different perspectives regarding how to define synthetics; the most fundamental disagreement among these lenders is whether synthetics are a fraud or credit problem. This discord, combined with the difficulty identifying whether a crime has even occurred, complicates the development of a strategy to combat synthetic fraud and the ability to size and scope the issue. Herein lies the problem of solving this growing and evolving threat.

How do enterprises obtain the budget and resources to address synthetics if they can’t accurately define synthetic fraud or quantify the magnitude of its impact? Without additional tools or processes to combat synthetics, executing a defense strategy is challenging.

To protect against synthetic identities, enterprises need the flexibility to address two main concerns:

  • Identity legitimacy – Is this identity real or fake?
  • Credit abuse – Does this consumer have an intent to misuse credit?


Because synthetic identities manifest themselves in different ways within an enterprise, the ability to address both identity legitimacy and credit abuse is a crucial step toward stopping synthetics’ path of destruction. Without the ability to effectively fight the problem as each organization experiences it – be it fraud or credit risk – many lenders and service providers are stuck in neutral against this rapidly growing threat.

To learn best practices for optimizing your detection and prevention strategy for synthetics, watch our on-demand web seminar hosted by American Banker: Tackling synthetic identity fraud head-on.

Are you attending Money20/20? We will be releasing a new data study at the show that demonstrates the behavioral differences between synthetic identities, credit bads and other types of fraud, that help lenders pinpoint the transaction patterns of synthetics and stop them before they attack. Plan to attend the Fraud Whack-a-Mole: Securing Payments in a Post-EMV Chip World  panel on Monday, October 22 from 1:00pm – 1:40pm, where the panelists will take you to the dark underground of fraud trends, particularly those related to identity theft and synthetic identities.

Kevin King is Director, Product Marketing at ID Analytics.