Synthetic Fraud Drops, But Forecast Sees Dramatic Post-Pandemic Rise


Source: "Synthetic Identity Fraud: Diabolical Charge-offs on the Rise," an Aite Group report sponsored by TransUnion.

By Roy Urrico


Synthetic fraud and outstanding balances for suspected synthetic accounts at U.S. financial institutions declined significantly following declaration of a COVID-19 pandemic last March, according to TransUnion research. However, a study by technology analyst firm Aite Group finds the cost of synthetic fraud set to rebound to new elevations post-pandemic.


Synthetic identity fraud involves fraudsters creating false identities by patching together actual authentication elements and fake information to open sham accounts. Most companies do not grasp the complete scope of their synthetic account exposure, since synthetic attacks are often written off as credit losses (aka “diabolical charge-offs”), according to the study.

Shai Cohen, TransUnion

“The dip in synthetic fraud during the pandemic was a continuation of our 2019 findings that showed synthetic fraud was slowing amid the emergence of solutions that connect personal and digital identities,” said Shai Cohen, TransUnion senior vice president of global fraud solutions. “We believe this slowdown was compounded by fraudsters who went elsewhere and could be lying in wait to take advantage of pandemic loan forbearance programs that may not have come due yet. Once synthetic fraud reemerges, which we think it will, companies must be ready.”


Despite the recent drop in synthetic fraud at financial institutions, an Aite Group report, “Synthetic Identity Fraud: Diabolical Charge-Offs on the Rise,” sponsored by TransUnion, forecasts the cost of synthetic fraud to rise in the coming years. Aite Group estimates that synthetic identity fraud for unsecured U.S. credit products will reach $1.8 billion in 2020 and will grow to $2.42 billion in 2023. This report examines synthetic identity fraud’s impact and best practices in combating the issue. For its research, Aite Group surveyed 46 North American fraud executives in September 2020. The report also includes input and insights from ongoing Aite Group conversations with fraud executives at financial institutions (FIs) and fintech lenders.

Julie Conroy, Aite Group

“Synthetic fraud is an extremely difficult problem to solve,” said Aite Group Research Director, Julie Conroy. “Out of financial services firms that we recently surveyed, 72% said that they believe synthetic identities are a much more challenging issue to identify and address than identity theft.”


The majority of financial services firms recognize significant gaps in respective application fraud control frameworks, and 78% of executives who were surveyed plan to make substantive changes in the next one to two years.


The report also revealed, while financial services firms are certainly a key target of these attacks, a number of other vertical markets also feel the pain of synthetic identity fraud, including property rentals, utilities, telecom and gambling.


Outstanding Fake Auto, Card and Loan Balances


Chicago-based financial information firm TransUnion’s latest analysis of outstanding balances attributed to suspected synthetic identities for auto, credit card and personal loans found them at their lowest levels since the first quarter of 2016. The latest data available (third quarter 2020), discovered synthetic fraud balances in those sectors stood at $855 million — down from a high of $1.05 billion in quarter three of 2018. The TransUnion analysis found instances of synthetic fraud dropped markedl