A new report delves into the escalating problem of synthetic identity fraud, often termed the “Frankenstein” fraud due to its complex construction of identities from real and fabricated data.
This approach creates an entirely fictitious profile that passes credit checks, eluding traditional detection methods.
In recent years, synthetic identity fraud has emerged as one of the fastest-growing forms of fraud, with LexisNexis research estimating over 3 million high-risk identities in circulation in the UK alone.
These identities are often created by blending valid data, such as Social Security numbers or partial names, with false information to simulate a credible credit history.
Unlike identity theft, which involves stealing an individual’s existing data, synthetic identities are fabricated with enough legitimacy to evade detection, thus allowing fraudsters to establish a credit profile.
Frankenstein Fraud
As the report highlights, these identities remain active within financial systems for extended periods, making consistent payments to enhance creditworthiness until a significant cash-out event or “bust out” phase, where substantial debt is accrued and subsequently defaulted upon, often leaving lenders unable to recoup their losses.
This type of fraud is especially problematic because there is no clear consumer victim to alert institutions.
As a result, fraud losses are frequently written off as credit defaults rather than fraud, allowing these cases to slip through the cracks.
LexisNexis points out that synthetic identity fraud is challenging for institutions to detect without sophisticated, cross-departmental fraud prevention systems.
Traditional identity verification methods fall short in identifying these fake profiles, which often present a legitimate appearance on the surface.
The report also emphasises the industrial scale at which synthetic identities are manufactured, with “synthetic farms” and “synthetic houses” housing hundreds or even thousands of synthetic identities in a single location, often utilising shared addresses, postboxes, and minimal government verification records.
For instance, one investigation highlighted in the report identified 1,653 synthetic identities associated with a single London address over two decades.
In combating synthetic identity fraud, LexisNexis advocates for an integrated approach to fraud prevention, involving cross-referencing multiple data points and employing predictive analytics.
By utilising behavioural analysis and sophisticated data interconnections, institutions can better identify high-risk applications, reduce false positives, and streamline legitimate application approvals.
Estimates show that around 15% of debt write-offs may involve synthetic identities.
As synthetic fraud continues to rise, institutions need advanced tools and partnerships to prevent such fraud from impacting their bottom line.
By leveraging predictive analytics and expansive datasets, businesses can more effectively isolate suspicious profiles and ensure they are not unknowingly harbouring synthetic identities.
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