When merchants and fraud experts meet at conferences and networking events, a growing area of concern has been synthetic identity fraud. Recently, the Federal Reserve weighed in on the topic with a report that called it the fastest-growing type of financial crime in the U.S. The report identified the near-universal use of Social Security numbers, an environment where more data breaches are exposing more personal information and gaps in the credit process as main contributors to the problem. The combination of these factors make synthetic ID fraud very difficult to detect. The report cites research that estimates 85 to 95 percent of identities that were eventually proven synthetic were not flagged by traditional fraud systems.
The report is aimed mainly at banks, but details the lifecycle of synthetic identities and where fraudsters are using them—valuable information for e-commerce merchants dealing with this new fraud variant. It also points out several areas where payments industry stakeholders need to improve, including the inability to agree on basic identifying characteristics of synthetic ID fraud, insufficient investigation and simple lack of awareness.
“Like cybercrime, the growing problem of synthetic identity payments fraud cannot be addressed by any government or private sector organization working in isolation,” the report concludes. “It requires the attention of all payments industry stakeholders to collaborate and work together to understand, detect, mitigate and address synthetic identity fraud in the U.S. payments ecosystem.