What is a Synthetic Identity?

A synthetic identity is a combination of fabricated credentials where the implied identity is not associated with a real person. Fraudsters create synthetic identities using potentially valid social security numbers (SSNs) with accompanying false personally identifiable information (PII). For example, the synthetic may have a real, “shippable” address and the SSN may appear valid, but the SSN, name, and date of birth combination do not match with any one person.

The Dangers of Synthetic Identity Fraud

The true danger of synthetic fraud is that, unlike third-party fraud where an entire identity is stolen and used to defraud enterprises and victims, synthetic identity fraud frequently has no specific consumer victim. That can sound like a good thing – until you realize that consumer victims are a critical tool in detecting and stopping fraud. The lack of a clear consumer victim presents two challenges to enterprises.

  1. When there’s no consumer to alert an organization to fraudulent activity during account life, fraudsters can use a synthetic identity to keep accounts open for months-to-years, garnering credit line increases and improved credit standing, only to eventually max out the credit line and disappear without a trace.
  2. Once the account charges off, with no consumer victim to dispute the tradeline, synthetic frauds are often categorized as credit bads – as there is no clear evidence of fraudulent activity. For enterprises, this means it is difficult to even know they have a synthetic identity fraud problem – and even harder to know whether new defenses are proving effective.
In Synthetic Identity Fraud Prevention, the Network Matters

A major contributing factor to the heightened risk associated with synthetic identities is the implementation of social security number randomization, the Social Security Administration’s new approach to SSN issuance that took effect in July 2011. While this new approach was designed as a way to provide higher safeguards for the public, it has also made it more difficult for fraud detection systems to identify a fictitious SSN.

The accidental or intentional use of a fictitious SSN that targets this new loophole, paired with fabricated identity elements, is one of the more difficult scenarios for lenders to identify and prevent. As long as the SSN does not raise any red flags, such as an invalid format or range, the unknown identity may bypass the lender’s security system.

Without a paper trail leading to a real person, the true victims of synthetic identity fraud are the lenders and service providers who are left to absorb the high-frequency and high-dollar losses associated with the crime. Synthetic fraud is a complex challenge that’s growing by the day – solving it requires a unique blend of data, analytics and subject matter expertise. Contact ID Analytics today to learn more about the best practices and defenses enterprises need to consider in combating this ever-evolving threat.