Rise of Synthetic IDs Demands New Approaches to Identity at the Point of Onboarding

The synthetic ID — the online identity concocted through bits and pieces of information gleaned from far-flung sources, cobbled together by fraudsters — is wreaking havoc.

TransUnion found in its latest State of Omnichannel Fraud report that 13.5% of transactions associated with online account creation — in other words, the point of onboarding — were possibly fraudulent. The fraud, per TransUnion, was associated with account signup, registration and loan origination, and in the United States, digital fraud topped nearly 5% at account creation, at 4.8%.

The Damage Done

In terms of the financial impact, the TransUnion study found that in the U.S. — across auto loans, bank credit cards, retail credit card — exposure to those scams stood at more than $3 billion at the end of last year, up from $1.9 billion in the midst of the pandemic.

Given the fact that, as TransUnion found, there was a 15% increase in U.S. data breaches as measured from 2022 to 2023, and 54% of consumers internationally reported being targeted with online, email, phone call or text messaging fraud, proactive measures are warranted.

Headed into the end of 2022, and in the PYMNTS Intelligence report “Fraud Takes on a New Identity,” PYMNTS Intelligence found in collaboration with DataVisor that, per PYMNTS own estimations, 4.6% of transactions were classified as synthetic identity fraud.  And, per the Fed’s FraudClassifier model, synthetic IDs accounted for a commensurate percentage of dollar losses experienced by FIs.

Proactive Steps and Advanced Technologies

There are, of course, a number of firms that have taken, and are taking, steps to battle the bad actors using the credentials gleaned from data breaches and other activities.

As noted here, in one example, Cox Automotive added a new synthetic ID fraud indicator to its Dealertrack Compliance solution for car dealers. The announcement, from earlier in the year, detailed that Synthetic ID Fraud Alert is designed to detect synthetic ID behaviors and help dealers guard against fraudulent transactions earlier in the finance and insurance (F&I) process.

Elsewhere, in the U.K.  FinTech company Detected secured €2.2 million (about $2.4 million) in funding for its business onboarding intelligence offering. And Plaid has launched a network, collaborative in scope — the Plaid Beacon network — that is open to FinTechs, financial institutions and Plaid-powered customers and allows them to share information about stolen identities and compromised accounts.