“Synthetic fraud differs from traditional identity fraud in that instead of assuming the identity of a real person using their credit, it creates a new identity using a real social security number with a fictitious name, driver’s license and address.

Traditional identity fraud is usually detected and reported relatively quickly because there is a real victim who is being affected. To create a synthetic identity, a scammer simply needs an unused social security number, often from a child. With this fresh social security number, they can establish a new identity with the credit bureaus.”

According to Forbes, success for synthetic identify thieves is in the persistence of their efforts:

  • Applying to loans repeatedly, creating a credit profile base
  • Building credit through full repayment of small purchase
  • Publicizing the false identify to give it legitimacy

“The Federal Reserve reported that the largest synthetic ID ring detected to date caused $200 million (or more) in losses from 7,000 synthetic IDs and 25,000 credit cards. Synthetic fraud costs lenders more than $6 billion annually, and the average loss is estimated at $10,000 per account.”

Forbes recommends banks can fight this emerging risk by:

  • Adding more verification and authentication steps
  • Looking beyond credit reporting to confirm an individual’s identify
  • Increasing KYC requirements with document verification
  • Biometric screening

Until the financial system diminishes the importance of social security numbers in establishing financial footprint, no one is immune from abuse.