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Synthetic Fraud Becoming a Very Real Threat to Global Businesses


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Synthetic Fraud Becoming a Very Real Threat to Global Businesses

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April 04, 2017
By Laura Stotler TMCnet Contributing Editor

As if the news that identity fraud is reaching epic proportions, breaking records in the U.K. last year for the most cases recorded, isn’t bad enough, businesses are being targeted by another global threat in the form of synthetic fraud. In synthetic identity fraud, thieves create a fictitious identity comprised of either a combination of real and made up information or purely fictitious data, and use it to apply for credit cards, open bank accounts or even to obtain passports and drivers’ licenses.


The phenomenon has led to new-account fraud more than doubling from 2014 to 2015, and close to seven million individuals had their social security numbers (SSN) compromised in 2015 – a more than 63 percent increase over the previous year. In synthetic fraud, a real SSN is typically paired with a fictitious name not associated with the number. Fraudsters also zero in on numbers not being actively used, like those of the deceased or of children. Synthetic fraud then typically leads to theft, creating a host of issues for businesses since the fraud isn’t tied to an injured consumer, making it more difficult to confirm than regular identity theft and fraud.

According to Pat Phelan, SVP of identity at TransUnion, a company specializing in credit scores and reporting, losses from synthetic fraud in the U.S. alone are approaching $50 billion per year. Phelan spoke to PYMNTS.com recently about risks from this new type of identity fraud and theft, as well as what businesses can do to combat them. Phelan remarked that fraud is consistently changing and evolving, and that solutions for prevention and remediation must change also to remain successful. And according to TransUnion’s research, fraud against lenders and banks is growing exponentially.

“Fraudsters are working as hard to scam the industry as the industry is working to prevent their scams,” said Phelan. “The days of stealing a credit card and using it for eCommerce transactions, while still prevalent, now make up only the tip of the iceberg. We are seeing professional networks that behave like hackers of yesterday and are constantly probing and testing new methods.”

Research has also shown that synthetic credit profiles are often cultivated for up to five years before being used to rack up more than $100,000 in losses among a variety of lenders. The trend has elevated synthetic fraud to big-league status, comprising more than 80 percent of all first-party fraud.

The good news, according to Phelan, is that there are a number of identity triggers that can help businesses combat synthetic fraud. These include very high credit applications within a brief period, a recently issued SSN and the number of credit cards issued to an “individual” within a brief period. The key to fighting against synthetic fraud is to match a digital identity, which can include an IP address, location, email address or cell phone number, with a physical identity. Failure to match the digital information with physical metrics like name and address verification is vital to pinpointing fake, synthetic identities. Once companies can figure out how to harness that process and trigger real-time fraud alerts, they’ll have upped their authentication game and will be able to stop synthetic fraud before it can do real damage to their businesses.



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