As financial services have shifted to the online platform, fraudulent activities also advanced to new levels, and synthetic identity fraud became one of the most complex challenges. Synthetic identity fraud is one of the fastest-growing types of fraud in the UK and experts think it could cost businesses a staggering £4.2 billion by 2027. Unlike traditional identity theft, where an existing person’s information is misused, synthetic identity fraud involves creating entirely new identities by combining real and fabricated information. This makes it possible for such fraudsters to bypass general verification measures thereby becoming a hard nut to crack for businesses and other financial organizations.
What is Synthetic Identity Fraud?
Synthetic identity fraud is when a fraudster uses real details, for example National Insurance number in the UK, in conjunction with fictitious details such as a fake name or address to create an identity which does not exist. These fake identities are then used to open accounts in financial institutions, secure credit or carry out any kind of transaction that involves use of credit. Over time, as this fabricated identity builds a credit history, it gains access to larger amounts of credit or financial services, leading to substantial losses when the fraudster “busts out” by maxing out credit and disappearing.
The Impact on the UK Financial Sector
Synthetic identity fraud is becoming a rising concern in the United Kingdom, and it is predicted that it will keep on increasing in the approaching years. As it has been emphasized by the UK Finance in the annual fraud report, similar scams are becoming increasingly common and, according to some estimations, over £1.2 billion was stolen through fraud in the United Kingdom in the year 2022. Further, the study conducted by the Cifas, the UK based fraud prevention service, shows that synthetic identity fraud has emerged as one of the fastest growing scams within the country.
How Does Synthetic Identity Fraud Occur?
Synthetic identity fraud typically unfolds in a series of calculated steps:
- Data Gathering: Fraudsters first obtain real personal data, like National Insurance numbers from data breaches or even buy their victim’s data from the dark web or phishing scams. This authentic data is crucial for creating a credible synthetic identity.
- Creation of the Synthetic Identity: Criminals then combine the actual stolen data with fictitious information such as fake names, address , date of birth among other things to develop an identity that does not belong to anyone.
- Establishing Creditworthiness: The synthetic identity enters the financial system very gradually with the help of applying for small loans or credit cards which might get rejected at the initial stage. Later, though, the fraudster may obtain authorisation for small credit lines or store cards. They also may develop several fake profiles where they use fake reference and employment history to gain trust.
- Building a Credit History: After getting credit approval, the fraudster makes small purchases and repay them immediately and thus creating a credit history for the synthetic identity. This may take a period of several months or even years and therefore its detection becomes very hard.
- Bust-Out Phase: The fraudster utilizes the Synthetic identity for a long time till the synthetic identity is built with a good credit history, then makes huge purchases or takes out a huge loan or credit line. Then they vanish without repaying, leaving financial institutions with substantial losses.
Why Synthetic Identity Fraud is Hard to Detect
Synthetic identity fraud is particularly challenging to detect since it does not involve the immediate exploitation of a particular individual’s identity. However, it gradually establishes an authentic and believable credit history of an individual, which may never be suspected as fake by the banks and other financial institutions. The fraudster can use this synthetic identity for as long as it takes, which can be days, months or even years before committing the final act of fraud, often leaving the victim unaware until it’s too late.
Combating Synthetic Identity Fraud with Idenfo Direct
At Idenfo Direct, we recognize the complexity and seriousness of synthetic identity fraud, and we offer advanced solutions to help UK businesses detect and prevent this threat.
- Advanced Identity Verification: Our platform uses state-of-the-art biometric verification, document authentication, and data cross-referencing to identify inconsistencies indicative of synthetic identities. By employing a multi-layered verification process, we ensure that even the most sophisticated synthetic identities are detected before they can be exploited.
- Continuous Monitoring: Idenfo Direct provides real-time monitoring and alerts for any suspicious activities that may suggest the use of synthetic identities. This allows businesses to act quickly, reducing the risk of significant financial loss.
- Data Analytics and Machine Learning: By harnessing the power of big data analytics and machine learning, our platform can detect patterns and anomalies typically associated with synthetic identity fraud. This technology-driven approach enhances the effectiveness of fraud detection and prevention.
- Collaborative Approach: We facilitate data sharing among financial institutions, enhancing the collective ability to identify and prevent synthetic identity fraud. This collaborative approach is crucial in a rapidly evolving fraud landscape.
Conclusion
As synthetic identity fraud continues to rise in the UK, it is imperative for businesses and financial institutions to adopt advanced, proactive measures to protect themselves. By leveraging cutting-edge technology and maintaining a vigilant, informed approach, businesses can safeguard against this growing threat. Idenfo Direct is dedicated to providing the tools and expertise necessary to protect UK businesses from the risks of synthetic identity fraud.