Of all the fraud vectors plaguing the payments industry,
synthetic identity fraud is one of the most concerning. Unlike card-present
fraud, which is on the decline due to the widespread adoption of EMV
technology, synthetic fraud is on the rise. Worse yet, traditional fraud models
are ill-equipped to even identify it.

Also concerning is that children are often the victims of
this type of fraud. In fact, an estimated 40% of identified synthetic identities
were constructed using information stolen from children born after 2011,
according to a recent white paper from GIACT, a leading fraud prevention
company.

The paper went on to note that this fraud vector is being
driven by the prevalence of data breaches: In 2018, 446 million consumer
records were exposed in data breaches, a 126% increase from 2017. The rise of
synthetic identity fraud is costing the payments industry considerably.

For instance, the credit card industry alone lost $6 billion
due to this type of fraud in 2016, according to GIACT’s white paper, The
Hidden Costs of Synthetic Identity Fraud.

In light of such alarming statistics, and to learn more
about what synthetic data fraud is and how to stop it, PaymentsJournal sat down
with David Barnhardt, Chief Experience Officer at GIACT, and Tim Sloane, VP of
Payments Innovation at Mercator Advisory Group.

During the discussion, Barnhardt and Sloane defined what
synthetic identity fraud is, sketched out the contours of the issue, and
discussed how GIACT’s fraud products can enable companies to fight back.

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Understanding
synthetic identity fraud

Synthetic identity fraud occurs when criminals combine real
and fake identity information to make a new, fake identity. By combining some
real elements with fake ones, the ensuing profile is harder to detect as being
fraudulent.

Sloane explained that criminals are turning towards this
type of fraud for two main reasons. First, with all the personal information
that has been compromised in data breaches, stealing someone’s personal
information has never been easier. Social security numbers, addresses, account
usernames, and passwords can be readily purchased on the dark web.

Second, EMV chip technology has made card-present fraud
increasingly harder to get away with. In response, fraudsters have turned to
cyber fraud as an easier and more lucrative alternative.