August 01, 2023

Synthetic Identity Fraud: Unraveling the Fastest-Growing Global Threat in Financial Fraud

Synthetic Identity Fraud: Unraveling the Fastest-Growing Global Threat in Financial Fraud

In the ever-evolving landscape of financial fraud, synthetic identity fraud has emerged as a juggernaut, surpassing credit-card fraud and identity theft as the fastest-growing form of fraud in the world. The attractiveness of this type of fraud lies in its ease, low cost, and reduced risk of detection. As the global community grapples with this phenomenon, several trends are reshaping our understanding of synthetic identity fraud.


How Synthetic Identity Fraud is Evolving


Synthetic identity fraud is not a new concept, but it has evolved to become more sophisticated and widespread. Unlike traditional identity theft, where the fraudster uses someone else’s identity, synthetic identity fraud involves creating a completely new identity using real and fabricated information. This new identity is then used to open fraudulent accounts and make transactions, leaving financial institutions in the dark about the fraudulent nature of the identity.


The advancement of technology, ease of access to personal information, and lack of robust verification mechanisms have all contributed to the growth of this form of fraud. Fraudsters utilize deep web forums, machine learning algorithms, and intricate techniques to craft credible synthetic identities that can bypass traditional detection methods.


Fraud-as-a-Service (FaaS)


With the rise of synthetic identity fraud, the cybercrime community has commercialized this form of fraud into Fraud-as-a-Service (FaaS). Here, organized criminal networks provide platforms that enable even non-tech-savvy individuals to engage in synthetic identity fraud. These services often come with user-friendly interfaces, tutorials, and customer support, facilitating the process of creating and utilizing synthetic identities.


FaaS platforms offer a range of services from providing fake credentials to creating fully functional synthetic identities ready for use. The democratization of fraud through FaaS poses an alarming challenge for governments, organizations, and law enforcement agencies worldwide.


Mule Accounts


Mule accounts play a crucial role in the ecosystem of synthetic identity fraud. These are bank accounts used to funnel illicit funds, often opened using synthetic identities. Mule accounts act as a buffer between the fraudsters and their final destinations, making tracing the flow of illegal money more complex.

Typically, the individuals behind these accounts are either complicit in the fraud or unwitting participants recruited through deceptive schemes. The extensive use of mule accounts further obscures the trail of fraudulent transactions and creates an intricate web of financial deception that is difficult to untangle.


How Traditional Credit Bureau Data is Compromised


The previous data breaches at various institutions have left traditional credit bureau data vulnerable. Fraudsters utilize the breached data, combining real information with fabricated details to create convincing synthetic identities.


These synthetic profiles often start with a ‘thin file,’ meaning they have limited credit history. Over time, fraudsters nurture these profiles, building a credit history that appears legitimate. Traditional credit scoring models struggle to identify these well-crafted synthetic identities, leading to significant losses for financial institutions.


Detecting and Preventing Synthetic Identity Fraud


Detecting and preventing synthetic identity fraud requires a multi-faceted approach that goes beyond relying on traditional credit header files. Enhanced risk scoring solutions powered by alternative data outside of the credit header file are emerging as effective tools.


Utilizing machine learning algorithms, these solutions analyze vast amounts of data, including digital footprints, behavioral patterns, and non-traditional financial data. By doing so, they uncover hidden relationships and anomalies that may indicate synthetic identity fraud. These next-generation solutions enable a more comprehensive and accurate detection of synthetic identity fraud, bridging the gap left by conventional methods.




The ever-changing landscape of synthetic identity fraud presents a persistent challenge for financial institutions and law enforcement agencies. While technology has facilitated the rise of this form of fraud, it also offers the means to combat it through innovative solutions.


This is where 1datapipe comes into the picture. With our living identity scores and underlying 387+ unique personalized attributes on customer profiles, we provide financial services companies with the tools needed to detect and prevent fraud, accurately assess credit risk, and promote financial inclusion with the underbanked population. To explore how 1datapipe can help you stay ahead of fraudsters, get in touch with us today.