Synthetic ID Fraud: Understand It, So You Can Stop It
Communications, Energy, Digital Media Providers Face New Challenges
Online and mobile-based platforms are changing how fraudsters operate. These faceless channels have enabled them to move past simple point-of-sale transactions involving stolen credit cards or stolen identities. Now fraudsters use more sophisticated schemes involving synthetic identity (ID) fraud to exploit stolen products, services, and money for maximum value.
The more that businesses know, the better they can adapt their internal processes to recognize synthetic ID fraud and stop it from entering their business. This is particularly true for service providers in the communications, energy, and digital media industries that manage high-volume consumer accounts and transactions.
Fraudsters Have Adapted to Changing Times
Back in the day, a stolen credit card was a gold mine. Fraudsters could go on extended spending sprees before getting caught. Today, algorithms and credit card chip readers have made point-of-sale transactions riskier.
For fraudsters, faceless channels are more attractive. Why? Setting up multiple fake accounts for cable, cell phones, and more over the internet—while sitting on the living room couch—is easier. All they need is a synthetic identity, which they create by piecing together bits of personal information from different people.
Fraudsters use these fake identities to infiltrate service provider businesses by setting up new accounts and applying for credit. Once the account is set up, they may or may not use it. It’s more about nurturing the identity and establishing credit, as they wait for the right time to max out the account. Of course, they never intend to pay off the account. With the mash-up of fake account information, fraudsters are impossible to track down. They just vanish, leaving the service provider with few options other than writing off the bad debt.
These fraudulent costs add up fast and are increasing each year. A recent Equifax study across key service provider industries reveals that synthetic ID fraud is costing communications and energy providers up to $25 million a year:
- The average charge-off is $866 per account
- The average wireless loss is $1,500 per account
The worst part is this trend shows no signs of slowing down.
Stop Fake Identities at the Front Door
What can you do to beat fraudsters at their own game, while still offering a seamless online account sign-up process? The truth is, a lot.
- First, start with your online account verification process. Use multiple high-quality data assets, including verified, non-public data. Pair that data with advanced analytics to help compare a SSN to a consumer’s unique identification information, and see how well the SSN matches its identity.
- Data keying and linking technology and additional analytics-based solutions can provide insights that detect linkages and suspicious patterns. These can help determine if the applicant is a real person.
- Algorithms that analyze attributes, such as authorized user velocity and identity discrepancies, are also useful in recognizing a synthetic ID. A synthetic scheme looks very similar to the appropriate use, which is why having analytics in place to detect this potential fraud is critical.
All of these strategies can be automated to ensure a frictionless customer experience. Meanwhile, the service provider can better protect its bottom line with a more secure account set-up process that detects fraud.
Recent Equifax studies show that by implementing one or more of these strategies, service providers can:
- Lower their false positive rates by up to 25 percent
- Identify up to 99 percent of their user populations
Read our white paper: The Stark Reality of Synthetic ID Fraud in the Communications, Energy and Digital Media Industries for details on combatting synthetic ID fraud — plus get the three tell-tale warning signs of a fraudulent SSN.
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