Risk & Compliance

Banks Losing More to Synthetic ID Fraudsters

A TransUnion report finds outstanding suspected synthetic fraud balances on credit cards rose 5.2% in the fourth quarter of 2017 to $290 million.
Matthew HellerMarch 9, 2018
Banks Losing More to Synthetic ID Fraudsters

Cyber-criminals are causing more credit card losses for financial institutions with scams that involve creating fake customer identities, though the rate of growth of so-called synthetic identity fraud slowed at the end of last year, according to a new report.

By some reports, synthetic ID fraud now accounts for around 85% of all identity fraud in the U.S., costing an estimated $2 billion a year.

In a new analysis of credit card transactions, TransUnion said outstanding suspected synthetic fraud balances rose 5.2% in the fourth quarter of 2017 to $290 million, compared to the year-ago period. During the previous year, such balances rose 68.5%.

The incidence of synthetic fraud on credit applications remained similar, moving from 0.59% at the end of 2016 to 0.60% in 2017.

TransUnion attributed the slowdown in the growth of synthetic fraud to proactive measures by issuers, but warned that it remains hard to detect.

“The threat of online fraud is significant as faceless digital application channels can make it more difficult to assess the veracity of the identity being used to acquire credit,” Geoff Miller, head of global fraud and identity solutions for TransUnion, said in a news release.

“High tech fraudsters armed with real personal information on good consumers apply with multiple identities for multiple products with multiple lenders within hours or days,” he added.

Synthetic ID fraud involves using either a combination of real and fake information — such as a child’s social security number, along with a false name, address and date of birth — or entirely false information to create a new “person.” The synthetic ID is then used to apply for credit.

“A lot of synthetic identities are created with an age of 25 or older, a time when a person should already have some credit history,” Lee Cookman, a director in TransUnion’s identity-solutions unit, told American Banker.

According to TransUnion, synthetic IDs are also being used for quicker and higher-dollar transactions, with the outstanding balances of suspected fake identities increasing 6.6% to $885.42 million in the fourth quarter for auto loans, credit cards, personal loans and retail cards combined.

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