Within the U.S. payments system, tenacity is turning into the new central narrative. No longer are fraudsters satisfied by assuming another person’s identity – they are now focused on creating false identities to commit large-scale financial crimes. This is called synthetic identity payments fraud, and financial institutions are left shouldering the majority of the costs.
In a recent white paper published by the Federal Reserve, bold action is encouraged against this growing epidemic. As EMV chip cards have dramatically reduced card-present fraud, criminals have moved to other types of fraud activities, including synthetic identity payments fraud, which targets everyone, including children, the elderly and the homeless.
Synthetic vs. Traditional Identity Fraud
To understand the difference between synthetic and traditional identity fraud, we must look at how directly one is affected by the crime. In the case of traditional identity fraud, a fraudster uses another person’s credit by pretending to be them, resulting in a direct financial effect on the victim. Comparatively, fraudsters create a new identity when engaging in synthetic identity fraud, often by combining both fake and real information to establish a credit record under a new, synthetic identity. These multiple and mixed-form identities create challenges in detection, as often only one piece of a real person’s identity is being used, such as a child’s Social Security number. In these cases, criminals behave like great credit union members – always paying on time and getting credit-line increases as a reward.
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