Synthetic identity theft is one of the fastest-growing types of identity fraud. Thanks to its complex, hybrid nature, it has resulted in significant losses for businesses and their brands.
A report from the US Federal Reserve estimated the cost of synthetic identity fraud to have been over $6 billion. The same research found synthetic identity fraud to account for 20% of all credit card losses.
Part of why it’s such a growing “trend” is because of how difficult it can be to detect. This is partially due to the more well-known, traditional type of identity fraud.
Source: Adapted from Payments Fraud Insights report (2020), Federal Reserve System
By combining information like social security numbers, and personal information with made-up names, postal addresses, etc, fraudsters can create an identity that looks real. They will then go on to behave like regular customers and create a credit history or trust relationships that they’ll exploit at a later point. This is done by making fraudulent purchases or borrowing vast amounts of money in a practically untraceable way.
By the time the fraud has been detected, they’ll have made off with thousands of dollars that your business is never going to get back.
The emergence of deepfake technology has only exacerbated this problem by allowing fraudsters to create realistic, lifelike images or videos of nonexistent people. The nature of synthetic identity theft, when combined with emerging and developing technology, has created a fertile breeding ground for scammers.
Hard to identify, track and even prove the ownership of, synthetic identity theft is a problem a modern business will have to deal with at some point.
One of the things fraudsters rely on is ignorance. They count on you and your brand to be unfamiliar with what they’re doing. The more you understand, the better equipped you and your business will be to combat this threat.
To help get you on that path, this article will ensure that you can successfully prepare your business against the looming threat of synthetic identity theft.
Why your business needs to be prepared against Synthetic Identity Theft
Preparing for theft is never a nice prospect to consider, but in today’s digitally reliant business world, being prepared for the worst can go a long way.
Synthetic Identity Theft is one of the fastest-growing forms of fraud that a business can be exposed to. It’s also much less commonly spoken about than traditional identity theft, despite being just as damaging – if not more.
To help you understand why consider three of the most important reasons you should be preparing your business against Synthetic Identity Theft.
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1. Potentially exposes your business to unclaimable loans
One of the most common things fraudsters that utilize Synthetic Identity Theft do is create major lines of credit to take out loans they do not intend to repay.
Having a detailed knowledge of how to prevent synthetic identity fraud is going to be crucial when it comes to controlling your customer from being exposed to this difficult-to-identify threat.
Thanks to the nature of Synthetic Identity Fraud and the way it can blend fake details with real ones, like stolen Social Security numbers, it can be hard to detect.
Especially if you’re using the more common types of anti-fraud detection software out there. If you’re a business, lender, or bank you can be tricked into loaning money that will never come back.
Synthetic Identity Theft is a long-term game. That’s what can make it so difficult to detect and stop.
2. Avoiding AML/KYC compliance fines
With origins based in the finance industry, today, AML ( Anti-Money Laundering) and KYC ( Know Your Customer) regulations apply to increasingly online businesses. These regulations are designed to limit a customer’s exposure to fraud and a business’s.
Failing to comply with these regulations can have a major impact on your business finances. The cost of KYC has been reported to be as much as $60 million yearly for the average bank.
Source: Consult Hyperion
While a business itself is seldom to blame when it comes to fraud or data breaches, the government does not look favorably on institutions that aren’t AML/KYC compliant. This is because this comes across as negligent and as a failure to protect customers and limit fraud.
While the actual security measures behind being AML/KYC compliant are a subject of some debate, the fact that they’re legally mandated means they’re something your business should bear in mind.
1. Security breaches damage confidence and trust in your brand
Brand reputation is crucial for a business and its long-term success.
Your reputation breeds consumer trust, and confidence which has a direct impact on your ability to generate revenue.
Today’s customers are inundated with options. This makes them quick to move on if they feel a brand is not living up to its promises or what they expect. Especially when it comes to security.
While your business may not have initiated the fraud that’s inconvenienced or cost your customers financially, they will inherently blame you. This means they’re not going to continue your relationship and worse, spread their negative experience with others.
Needless to say, this kind of bad publicity can severely hamper your business and its growth.
Nobody wants to associate with, let alone trust, a business that could not protect its customers and their data.
How you can protect your business from Synthetic Identity Theft
Prevention is always better than a cure. Especially when it comes to Synthetic Identity Theft.
The damage that can be caused as a result of this type of fraud can be extensive and often, very difficult to bounce back from. Reputational damage, for example, can have an immediate and drastic effect on your business and its ability to generate revenue.
To ensure your business doesn’t become a victim of fraudsters, consider using any (if not, all ) of the techniques listed below.
1. Utilize biometric security software
Biometric security is the most effective digital security solution out there.
Incorporating facial recognition technology and fingerprint or iris scanning software can severely lessen your business’s exposure to Synthetic Identity Theft. Doing this as part of your onboarding can be a smooth, frictionless, and noninvasive security process. This will save you a major headache down the road.
While it is still possible to manipulate the technology, the effort it requires often far outweighs the value a fraudster can achieve from it.
The more secure your customer’s accounts are, the less likely fraudsters are to attempt to trick your business.
2. Incorporate multi-factor authentication
Multi-factor authentication is becoming increasingly common when it comes to logging in and signing up for apps and websites.
That’s because while gaining access to your username and password may be a possibility for fraudsters, combining that with biometric details or an OTP makes a breach much more difficult.
The image below is an excellent example of multi-factor authentication.
Requiring your customers to respond to an OTP email or SMS ensures that the customer whose details are attached to the account are the ones who actually make purchases or transactions.
This method should be used in conjunction with other security verification methods.
If you want to prevent theft and data breaches, a “one shoe fits all” approach doesn’t exist. The only way to minimize or eliminate fraud is by using several techniques. Multi-Factor authentication being one of the most effective.
Today’s increasingly complex, digital modern world requires solutions that can not only keep up but adapt to cyber security threats like Synthetic Identity Theft.
1. Use AI and machine learning
Artificial Intelligence is another increasingly used tool that businesses can utilize to combat Synthetic Identity Theft. Machine learning that uses advanced algorithms to detect unusual customer behavior is exactly as valuable as it sounds.
Not only can these technologies identify suspicious behavior, but they also come with a range of other useful abilities. These include being able to flag this behavior, track locations where purchases originate from, scan for malware, and even pick up when purchases are made with unfamiliar devices.
While it may seem inconvenient for your customers, machine learning and AI tools can also be used to require additional security processes before a transaction. These additional security layers act as filters for would-be hackers or fraudsters.
Synthetic Identity Theft presents a real, growing threat to modern businesses.
Billions have been lost, and businesses around the world have felt the impact of synthetic identity theft. Part of the reason for that has been the failure of modern businesses to adapt as quickly to the threats it’s been exposed to.
To succeed in today’s online world, you need to go beyond traditional fraud and theft detection methods. Staying alive means staying ahead of not just your competitors, but the threats that grow and adapt on a daily basis.
Prevention is better than any cure, and part of that involves educating both you and your employees with articles like this.
Ryan Fick is a Cape Town-based, internationally-raised, opinionated writer who is passionate about politics and social justice and a firm believer in the link between “Amandla” and “Awethu”. With a background in Journalism, Travel, and all-around Content Writing, as well as a burgeoning interest in all things SEO. He is a perpetual knowledge seeker who knows enough to know he doesn’t know it all.