AI speeds synthetic identity fraud, enabling human-like interactions

Fake identities are driving a boom in financial fraud. A new study has shown that fraud involving AI-generated identities has risen 17 percent over the past two years, while more than two-thirds (76 percent) of financial professionals believe that their companies have approved customers using synthetic identities.

The research also reveals that 87 percent of experts anticipate the problem worsening before an effective solution is found. The survey interviewed 500 fraud and risk professionals with a minimum seniority of manager at financial services and fintech companies. The research was conducted by Wakefield and commissioned by U.S. synthetic identity fraud prevention company Deduce.

Synthetic identities are created by combining real personal information, such as social security numbers, with fabricated data, including those created by generative AI.

“Synthetic identity fraud has long been a significant challenge for the financial industry, but the advent of AI technology has accelerated the problem,” says Ari Jacoby, Deduce’s CEO. “Fraudsters are now able to create identities at an unprecedented pace, allowing them to play the long game with these personas.”

Once a fraudster has established a synthetic identity in the credit reporting system, they open the doors to attack other financial institutions by taking out loans and credit lines that they don’t intend to repay. Estimated costs of the attack vary: 37 percent of risk experts said that the average cost of an incident involving synthetic fraud was between US$25,000 and US$100,000. Nearly a quarter (23 percent) estimated the cost to be more than US$100,000.

While the industry invests in fraud prevention, 52 percent of experts believe that fraudsters are adapting faster than defenses can keep up, according to the study. More than 4 in 5 financial organizations (85 percent) use personal interviews to verify new account holders when making new accounts.

To stem the tide of synthetic fraud, Deduce is pitching its own AI solution. The company recently landed US$9 million in Series B funding for its AI digital identity fraud prevention product.

But synthetics may not be all bad. Using synthetic data instead of real people’s faces to train facial recognition systems has been gaining ground among biometrics companies around the world. Companies from Amazon to Innovatrics and IDVerse have been employing synthetic data as a solution to bias and privacy issues in biometric algorithm training.

Article Topics

biometrics  |  Deduce  |  financial crime  |  financial services  |  fraud prevention  |  identity verification  |  synthetic data  |  synthetic identity fraud