Synthetic fraud—combining fake and legitimate information to build identities used for opening new accounts or making fraudulent transactions—is difficult to detect and increasingly prevalent. According to a recent report from McKinsey & Company, the banking industry has not seen any progress in identifying fraudulent activity despite substantial investments in artificial intelligence tools, such as chatbots. And merchants, in addition to banks, are certainly susceptible to this type of fraud.
Fraudsters are using synthetic fraud to draw credit, and they are reportedly having great success across midsized to large firms. In part, the problem is rooted in a lack of efficient government processes available to validate different identification documents from social security numbers to dates of birth.
“In the U.S., synthetic card crime is high, and it leads to bigger losses to the banking industry. The largest synthetic ID ring ever detected racked up around $200 million using 7,000 synthetic cards and 25,000 credit cards,” authors Bryan Richardson and Derek Waldron wrote.
While the U.S. government is reportedly building an application to verify Social Security numbers, names, and dates of birth as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155), no formal process currently exists, leaving the banking industry with no effective way of uncovering synthetic ID fraud.
Get recommendations for how to attack synthetic identity fraud here.
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