There are a number of reasons why synthetic fraud is on the rise, but there are also actions banks and other financial institutions can take to prevent this growing trend from doing damage.

Synthetic fraud on the rise

Banks around the world have faced difficulty in recognizing this type of complex fraud. Synthetic identity fraudsters are expert cybercriminals. They make use of the dark web to acquire legitimate personal information which they then blend with falsified information. They will then use this newly formed identity to establish a positive credit report and spend or borrow until they’ve maxed out their spending abilities.

They will often have multiple synthetic identities in play simultaneously to maximize the impact of their efforts. And it is hard to detect because these synthetic identities even have genuine profiles with the credit bureaus which the fraudsters creatively engineer.

An economic environment primed for fraud

Due to the economic toll the coronavirus pandemic has taken on the world, global GDP is expected to be negative this year. As a result, there has been and will continue to be an increase in the size of the banks’ loan portfolios, as businesses that are struggling to manage working capital requirements in a challenging commercial climate seek new lines of credit. The same demand for additional credit is similarly anticipated for retail customers.

As such, it will be easier to hide fraud within an environment where there is more lending activity, a larger portfolio to monitor and more losses to recover. This environment allows criminals to hide inside the noise of economic turmoil, while financial institutions struggle to cope with the sheer volume of applications, overwhelmed with the amount of identity checking they have to undertake.

It will also become harder to differentiate between delinquencies and defaults from genuine customers in distress and deliberate attacks from fraudsters as these loans come due for repayment.

Further, more individuals may be tempted to turn to fraud to maintain their lifestyles in an environment where they’ve lost jobs, financial security and are dealing with other economic difficulties.

How to stay ahead of the rise of synthetic fraud