A New Type of Fraud Businesses Need to Know About


Payment fraud and identity theft are issues that retailers and credit card processors have battled for years. One of the reasons EMV became a standard across the US is it had a proven track record of cutting down in-person fraud. And in the years since EMV became mandatory, fraud at retail terminals has dropped significantly.

Unfortunately, that doesn’t mean fraud is no longer an issue businesses need to think about. At the same time that in-person fraud has fallen, online fraud has continued to grow at a rapid pace. This is something that’s affected everyone from small businesses to massive corporations. Because fraud remains a very real threat for businesses of all sizes, we want to cover a specific type of fraud that’s becoming increasingly prevalent.

Synthetic ID Fraud 101

With the standard approach to credit card fraud, there was generally only a small window of time before a victim realized what was happening and canceled their card. This is why a thief would test a stolen card with a few small transactions and then move to much larger amounts if successful.

The new type of fraud we want to highlight is known as synthetic ID fraud. One of the traits that makes this fraud different is it can take place over a much longer span of time. The way it starts is a criminal steals a Social Security number from a living individual who is unlikely to monitor their credit history. Elderly people and children are common targets.

From there, a new identity will be created by using elements like fake social media profiles, addresses, and telephone numbers. By utilizing these elements to create what seems like a real person, a thief can gain access to a significant amount of credit. Once they reach that point, they can spend it all and then disappear without any trace related to the identity they nurtured.

What Businesses Can Do About Synthetic ID Fraud

As you may have guessed while reading the above description, dealing with this type of fraud is by no means easy. That’s why the total amount of losses attributed to this fraud are rapidly catching up with all online fraud. However, that doesn’t mean the financial industry is completely powerless. There are a few promising options for combatting this type of ID fraud.

In-person verification is the first. Requiring someone to show up and prove their identity is essential for any business that offers credit. AI is the second. Different companies are hard at work on algorithms to detect suspicious activity. And the last is universal credit monitoring. While data breaches like Equifax have shown that centralization can be problematic, there is value in having a core set of data.

As a business owner, there isn’t much you can currently do to specifically defend against synthetic ID fraud. What you can do is ensure that you have strong security practices in place to discourage this and all types of fraud. If you’re frustrated by your current processor’s lack of security options, be sure to look at the top processing companies of 2018.

Posted on Monday, June 11th, 2018