Payments Security, Webinars

On the Front Lines Against Synthetic Identity Payments Fraud

The time is now for payments stakeholders to recognize what may be the fastest-growing financial crime in the United States: synthetic identity fraud. Financial institutions should take steps to mitigate this type of fraud due to the looming risks and losses caused by synthetic identities, but many may not be aware of the prevalence of synthetic identities in their book of business.

Synthetic identities are completely fictitious, yet how are they brought to life? Perpetrators combine falsified personal information with real information in order to create a fake identity, often with the intention of defrauding financial institutions, government agencies and individuals. For example, fraudsters may use a real name with a random date of birth and Social Security number to create a fake identity and apply for credit. The perpetrator’s goal then is to “bust out” by maxing a credit line and disappearing without paying the debt. What’s left is a stream of outstanding bills and no real person to hold accountable.

Why should the payments industry take more notice of this phenomenon? In 2016, it was estimated that synthetic identity fraud cost U.S. lenders more than $6 billion. These fraudsters also can create elaborate crime rings and operate at scale. In 2013, the Department of Justice charged 18 people as co-conspirators of a credit card fraud ring that fraudulently obtained more than 25,000 credit cards using 7,000 synthetic identities over the course of 10 years. This crime ring had transnational implications spanning eight countries and 28 U.S. states.

Synthetic identity payments fraud has existed for decades, but fraudsters increasingly capitalize on this scheme due in part to the widespread digitization of financial systems. Addressing this type of fraud is an important undertaking that requires industry collaboration and education. In 2018, the Federal Reserve launched an initiative dedicated to researching and raising awareness of this issue. Since then, the Fed released its first white paper, Synthetic Identity Fraud in the U.S. Payment System: A Review of Causes and Contributing Factors (PDF).

On September 4, 2019, the Federal Reserve held a webinar with people on the front lines investigating synthetic identity fraud to discuss crime rings, best practices for financial institutions when synthetic identity fraudsters target their payment systems, and more.