Synthetic identity fraud: a growing threat in the digital world

A new generation of digital fraud is here: synthetic identities that fool even the best verification systems.

Synthetic identity fraud is one of the most sophisticated criminal practices today. Unlike traditional identity theft, where a criminal uses a victim's real personal information, synthetic identity fraud involves creating a completely new identity by combining real and fictitious data.

This type of fraud, estimated to be the 851st largest fraud, has evolved with the use of AI and the vast amount of information available on the internet, allowing criminals to fool verification systems and commit large-scale financial fraud. According to Bryan Richardson and Derek Waldron, the most significant frauds have generated losses of up to $200 million, involving more than 7,000 synthetic identities.

How a false identity is constructed

The process of this type of fraud begins with the collection of stolen personal data, such as Social Security numbers, names, or dates of birth. From this information, criminals create a false identity that can pass the validation checks of many institutions. They then use this identity to open bank accounts, apply for loans, and build a positive credit history. Once the fraudulent identity has gained sufficient credibility within the financial system, the fraudsters access high-value loans and disappear without a trace, causing millions in losses to banks and other financial institutions.

The biggest problem with synthetic identity fraud is that it's difficult to detect. Because the created identities don't belong to a single real person, it can take years for victims to realize their information has been misused. Furthermore, many of these frauds are discovered after the financial institution has already suffered significant losses. For this reason, synthetic identity fraud not only impacts financial institutions but also erodes consumer trust in digital services.

This type of fraud is especially dangerous in e-commerce, where criminals can use synthetic identities to make fraudulent purchases. Because these profiles combine real information with fictitious data, they can sometimes bypass verification processes such as the online shopping system. KYC (Know Your Customer), designed to validate user identities. Therefore, it is essential for companies to have advanced security strategies that allow them to detect suspicious behavior patterns.

Techniques used by criminals

Synthetic identities can be generated in a variety of ways. In some cases, criminals manipulate real information, such as modifying small details of an ID number or date of birth to make it appear legitimate. In others, they combine real data from multiple people to create a completely new identity, making it even more difficult to trace. These practices make manual verification insufficient, so companies must implement advanced technological solutions to avoid becoming victims of these frauds.

Fraudsters often obtain information from a variety of sources, including leaked databases, phishing attacks, and other social engineering techniques. Often, data from children, the elderly, or deceased individuals is used to create synthetic identities, as these populations are less financially active and less likely to detect fraud in a timely manner. The increasing digitalization of financial services has facilitated this type of crime, making prevention and early detection more necessary than ever.

Technology as an ally in prevention

To combat this type of fraud, it is crucial that e-commerce companies and financial institutions adopt more sophisticated security measures. The implementation of artificial intelligence and machine learning allows us to analyze behavioral patterns and detect anomalies in the use of personal data. In addition, the Biometric authentication, social media verification, and the use of multiple authentication factors can help reduce the risk of fraud. with synthetic identities without compromising the legitimate user experience.

It's important to differentiate synthetic identity fraud from traditional identity theft. While identity theft involves the unauthorized use of real personal data to commit fraud, synthetic identity creates a new, fictitious persona from combined real and false information. In both cases, the consequences can be devastating for the victims and the affected businesses.

Synthetic identity fraud represents one of the most complex threats in the financial and digital world. Its evolution has been driven by technology and access to large volumes of data, which has allowed criminals to operate with greater sophistication. The key to combating this problem lies in the implementation of advanced security solutions, constant monitoring of suspicious activity, and educating users about the risks associated with disclosing personal information online. With a comprehensive and preventative approach, it is possible to reduce the impact of this type of fraud and protect both businesses and consumers from significant financial losses.