Socure Estimates Financial Losses from Synthetic Fraud to Reach Nearly $5B by 2024

INCLINE VILLAGE, NEVADA — OCTOBER 20, 2022 – Socure, the leading provider of digital identity verification and fraud solutions, today issued a report on synthetic identity fraud that illustrates the growing threat this type of fraud posed to US industries, government agencies, and consumers. If synthetic identity fraud continues to go unchecked, losses will double from the estimated $2.48 billion this year to nearly $5 billion in 2024, the research shows.

The report titled, “The State of Synthetic Fraud: Evolution, Trends, and How We Will Eradicate it By 2026” also uncovered revealing patterns about how fraudsters construct synthetic identities that may assist in identifying and thwarting this kind of crime. The research reveals some of the most common identity elements of synthetic identities, including the most common names criminals give them. The report documents some of the most recent patterns employed by synthetic fraudsters, such as launching increased attacks on demand deposit accounts (DDAs). Most importantly, the report sheds light on the ineffectiveness of traditional methods to fight synthetic identity fraud while providing insights into what practices effectively detect and defend against this crime. 

“Battling this kind of fraud poses many challenges and some can be traced to modern credit reporting practices and how fraudsters exploit them,” said Johnny Ayers, founder and CEO of Socure. “At Socure, we strongly believe we can eradicate synthetic fraud within the next three years, and stop the damage that bad actors are committing against consumers and our financial system. That goal inspired us to develop a product that is far more precise in identifying synthetic fraud than anything else in the market, while removing friction from the acquisition of legitimate consumers.” 

Beware of Michael Smith
The Federal Reserve defines synthetic identity fraud as the combining of personally identifiable information to “fabricate a person or entity” for the purpose of committing dishonest acts for personal or financial gain. Often the information, such as name, Social Security number (SSN), and date of birth (DOB), belongs to living and unwitting victims. Fraudsters will then blend the information with fictitious identity elements. 

Socure’s data scientists studied years of synthetic fraud data to spot patterns in the fraudsters’ methods. They found that criminals employing synthetic identities do their best to meld them with the overall population. In the majority of cases, synthetic identities fell into the most common demographics and consumer traits. The four most used names for synthetic identities are consistent with the top four names in the Social Security Administration’s list of the most popular birth names over the past century—although not in rank order. After studying the fraud data’s most popular first names and surnames, Socure’s team found that the name most likely to be used for synthetic identities is Michael Smith. He is also most apt to be 31-years old, born in August, and reside in a single-family home located in Houston.   

Synthetic Identity Fraud is Growing, Morphing
The Department of Justice has said that synthetic identity fraud is the country’s fastest growing financial crime. What this increase means is that legacy fraud detection solutions and strategies haven’t kept pace with the growing sophistication of criminals and the explosive rise in the number of digital account applications. Meanwhile, fraudsters continue to evolve tactics. Bad actors have dramatically stepped up attacks in recent years on DDAs, savings, and investment accounts. Socure’s research found that retail banks and fintechs offering these accounts come under attack by synthetic fraudsters more than other industries.

Covid Was a Boon for Identity Fraudsters
The global pandemic became an important catalyst for synthetic fraudsters, according to Socure’s research. Not only does it appear to have significantly impacted the DDA and lending sectors, but the second wave of PPP loans appears to have resulted in the growth of synthetic fraud in investment accounts. 

Additionally, consumers hurt by the economic downturn increased their use of fraudulently manipulated identities to gain access to credit card and personal lending loans.

Fighting Synthetic Identity Fraud
Many organizations are concerned that attempts to weed out bad actors will introduce friction into the process of acquiring legitimate and profitable customers. But Socure’s multi-layered solution means that the right tools can be deployed at the right time to hone its customers’ decisioning strategy, whether the goal is to capture more synthetic fraud or create a lower-friction user experience.

Additionally, inaccurate or missing labels makes adequately implementing and testing the effectiveness of fraud detection models extremely challenging. It’s one of the biggest obstacles in preventing synthetic identity fraud. But Socure’s expert fraud investigators perform a critical task: They provide clean, corrected, and properly classified fraud labels for unlabeled or mislabeled raw data, enabling Socure’s Sigma Synthetic Fraud model to think like a fraudster and become savvier at detecting evolving synthetic threats.

To download the report, click here, and for more information on Socure’s Sigma Synthetic Fraud solution, click here.