Enter the Matrix: The Perilous Rise of Synthetic ID Fraud

Introduction

The 1999 science fiction thriller “The Matrix” gave us a fictional view of a world created to provide an artificial reality, dubbed the “Matrix.” The  purpose of that reality was to keep its inhabitants in complacency and devoid of knowledge of the actual dystopian world.

Morpheus, one of the main characters who overcame the trap of the artificial reality, expounded on the human frailty that kept most individuals ensnared in the trappings of the artificial world. When asked his definition of real, he replied, “If you’re talking about what you can feel, what you can smell, taste and see, then ‘real’ is simply electrical signals interpreted by your brain.”

Although the artificial reality depicted in the movie is fictional, it raised philosophical questions surrounding what is “real.”

Similarly, the less philosophical and more practical questions around reality come into plain view when businesses face the threat of synthetic ID fraud.

What is synthetic ID fraud?

Definition

Synthetic ID fraud occurs when a fraudster uses a combination of real and artificial data to create a wholly new ID in order to gain access to credit or new accounts or to make fraudulent purchases. In some instances, the data is entirely artificial. This differs from other forms of   as it cannot be traced back to an actual individual’s credit score, history or other personally identifiable information.

Synthetic identity fraud typically relies on an artificial identity created in one of various ways:

  • Combining a legitimate Social Security number (SSN) with a fake name
  • Using a Social Security number associated with a real name (typically a child or someone who’s died) that’s not active
  • Completely fabricating both the SSN and the name

Types of synthetic ID fraud

The methodology behind this type of fraud is fairly straightforward as defined above. However, nuances exist in  the intentions of synthetic ID fraud. The most sinister type is committed by professional criminals who aim to rob financial institutions or card issuers by racking up credit purchases or taking out loans that are never repaid.

In banking alone, 20 percent of all fraud losses are attributed to synthetic ID fraud. In these cases, fraudsters employ sophisticated tactics and are willing to “wait out” credit issuers by taking actual steps to build credit, such as establishing a good payment history, before exploiting the system with theft. Criminals using synthetic IDs can even procure fraudulent driver’s licenses and passports.

Other individuals may create synthetic IDs not for purposes of theft but to gain access to bank accounts for employment and payroll needs. Undocumented workers needing such information in order to obtain employment may use  this type of fraud. The intention and impact is different as the institutions may not incur unpaid debts, but the synthetic ID creation tactics are the same regardless.

History of synthetic ID fraud

The Social Security Administration (SSA) created the SSN in 1936 as a unique identifier to track an individual’s lifelong earnings. Before the advent of modern identity theft, government agencies would include a person’s SSN on government-issued IDs, insurance information and even auto registrations. Because a person’s SSN generally is never changed over the course of a lifetime, it served as an accurate form of identification authentication.

Point of interest synthetic identity social security number fact.

Despite the increased value of the SSN with the advent of online account creation, the SSA didn’t begin randomizing SSNs until 2011 to mask an individual’s area.  Although SSNs are no longer widely used in public-facing IDs, the   has given fraudsters ample access to them.

With more public knowledge of the threats of identity theft and more technology available to help consumers prevent it, the rise of synthetic ID fraud was inevitable. The emergence of synthetic IDs can also be traced back to the “credit bust out” tactic employed by some consumers with poor credit ratings.

Impacts of synthetic ID fraud

The most pervasive danger of synthetic ID fraud is that, unlike in traditional identity theft, no “real” person is harmed. At the outset, this seems like a positive, but it’s precisely this reason that makes synthetic ID fraud among the most difficult to detect  and prevent.

Additionally, since fraudsters using synthetic IDs build a fake credit history, traditional fraud detectors don’t immediately sound alarms at suddenly missed payments. That’s  because many legitimate reasons can be the cause, such as a loss of income or a change in financial circumstances. Debt continues to accrue, leaving the financial institution no recourse to recoup its losses.

Similarly, government agencies  can be defrauded of nutritional benefit funds, unemployment insurance benefits and other types of aid. In fact, no business entity, industry or sector is immune from the negative impacts of synthetic ID fraud.

Identifying and preventing synthetic ID fraud

Recently, more emphasis has been placed on consumer protections against identity theft and data breach. This is positive news that can raise the awareness of consumers, who can in turn help alert the companies with which they transact business.

However, the complexities and sophistication of synthetic ID fraud risks must be met with equally sophisticated corporate protections. Synthetic ID fraud is not a victimless crime just because no “real” person is impacted. Businesses, government agencies and financial institutions are left with the losses incurred by this type of fraudster.

Emailage customized risk assessment technology can be implemented seamlessly across all industries. Dynamic data from a customer’s email address, rather than static data such as an SSN, can better identify your customers and help provide the basis of your risk management strategy. The best approach to identifying and preventing synthetic ID fraud is a layered one.

Emailage Email Risk Score

 

Emailage Portal 3

 

Emailage risk management technology is scalable for any industry and employs the power of network reporting to bring a level of sophistication needed in the fight against synthetic ID fraud.

No magic pill

In “The Matrix,” Morpheus offered Neo the choice between a red pill that would reveal the artificial world for what it was or a blue pill that would allow Neo to remain unknowing of the harshness of reality.

Outside of this cinematic depiction, there is no magic pill that can separate reality from artificiality. To combat synthetic ID fraud, businesses must arm their risk management team with the best mitigation strategies and technologies or be doomed to remain unaware of reality.

Learn how the power of Emailage network intelligence and dynamic email data can help your company outsmart synthetic ID fraud.

Get started at emailage.com.