Synthetic IDs are key to solving fraud’s whack-a-mole game

Credit card and bank account fraud have soared during the pandemic, with fraudsters intercepting consumer data via retail and banking disruptions and worsening synthetic ID fraud.

Lenders say synthetic ID fraud risk will be their top area of concern for the next two years, according to a new study by Aite Group, with nearly three-quarters of institutions ranking it as a top challenge.

The broad shift to digital payments and remote working trends created new security gaps that fraudsters quickly exploited for synthetic ID fraud, which was already a serious problem before the pandemic, according to Yuval Marco, general manager of fraud and authentication at Nice Actimize, which sells financial crime-fighting solutions.

Synthetic ID fraud doesn’t necessarily account for the largest losses in card fraud, but it’s now the fastest-growing category of fraud, according to a variety of sources. Marco believes beating synthetic ID fraud could be the key to stamping fraud out more broadly.

“If we can conquer synthetic ID fraud by collaborating as an industry, it will go a long way toward reducing all other types of fraud,” Marco said.

With synthetic ID fraud, criminals steal elements of different consumers’ information to create new IDs that don’t really exist, then open accounts and build a credit history before busting out, and it’s shot up during COVID-19, he said.

Other categories of fraud are close behind synthetic ID fraud, the survey suggested. Third-party fraud—which includes routine account takeover fraud when a criminal steals access to a customer’s account—and first-party fraud, where customers deliberately or unknowingly disavow purchases they made, are also top concerns for lenders.

American Express this week unveiled a Digital Receipts service available for customers to get specific details about unrecognized purchases on their statement, to cut down on rising confusion and chargebacks. But the service is only available so far for purchases through Apple, Google, Microsoft and Square.

As a starting point, financial institutions, merchants and government agencies need to overlay data from different channels to verify identities for new accounts earlier in the onboarding process, Marco said.

The U.S. lags behind other countries in developing digital ID verification systems, and the pandemic has added new problems.

“With bank branches closed, and people working from home, many more organizations are allowing onboarding of new customers without face-to-face validation, making our synthetic ID problem significantly worse,” Marco said.

The urgency to make funds available through government stimulus programs also led to some hasty approaches that exposed consumer and business owners’ data, which fraudsters rapidly captured to create synthetic accounts, he said.

“The move to frictionless payments and raising contactless payment limits during the pandemic was another factor creating incentives for fraudsters to drive synthetic ID fraud on a mass basis,” Marco said.

The Social Security Administration’s effort with Experian and other organizations to provide a quick method for verifying a new account applicant’s identity is expanding this year, but it’s still a long way from broad adoption, he noted.

Toward creating an industry approach to fight synthetic ID fraud, Nice Actimize recently rolled out the New Account Fraud onboarding and verification solution, which monitors numerous channels during new account-setup to catch inauthentic identities earlier.

Leveraging AI and machine learning in real time, the solution detects complex fraud emanating from stolen and synthetic ID fraud, catching third-party fraud in the process, Marco said.

Nice Actimize’s solution pulls together a variety of identity-proofing tools from different providers through its X-Sight Marketplace. Included is digital identity verification from Ekata and Arkowl; behavioral biometrics from bugaroo and BehaviorSec and mobile network verification from Telesign and Prove.

Document verification within the solution comes from AU10TIX; IP intelligence is provided by Neustar and funding account verification is delivered by Q6.

“We have packaged multiple tools together, toward ensuring the legitimacy of an account at the opening and through the various phases where criminals typically strike, but there is still a lot more work to be done across the industry to conquer synthetic ID fraud,” Marco said.

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