Report finds synthetic identity fraud becoming biggest fraud threat in 2026

Synthetic identity fraud is fast becoming one of the biggest threats facing financial institutions, according to new research from Mitek Systems and Datos Insights.

The study finds the problem is growing quickly and getting harder to stop, with executives revealing the pressure they’re under. Around 84 percent say synthetic identity fraud poses a moderate or high risk to application processes.

Losses are climbing with unsecured credit losses in the U.S. reaching $2.94 billion in 2025, up from $1.8 billion in 2020. Synthetic identities are being used to power fraud across deposits, checks and mule accounts.

Researchers estimate a baseline increase of roughly 16 percent each year, driven by easy access to stolen or fabricated data and more efficient fraud operations. Generative AI is fueling the fire with about 40 percent of financial institutions saying they are already seeing more attacks linked to AI. Most expect that number to rise.

This doesn’t mean older fraud tactics have disappeared. More than half of executives reported increased first-party check fraud losses in 2025.

“These findings reinforce what fraud and risk teams are already seeing firsthand: synthetic identity fraud has become an industrialized threat,” says Garrett Gafke, Chief Operating Officer at Mitek.

“AI-enabled tactics, organized criminal operations, and scalable identity manipulation are changing the economics of fraud. Financial institutions need identity authentication and fraud prevention strategies that can detect risk earlier, adapt faster, and disrupt coordinated attacks before losses compound.”

The research also highlights how synthetic identities are no longer used just once. Instead, they help create accounts that can be exploited over time, across multiple products and channels. It means bigger, longer-term risks, especially for institutions still relying on fragmented detection systems.

“Synthetic identity fraud is a strategic control point for financial institutions because it increasingly serves as the foundation for a wide range of downstream fraud activity,” says Trace Fooshée, Strategic Advisor at Datos Insights. As AI makes fake identities cheaper and easier to create, he said, banks must rethink how they verify customers from the start.

The message is that firms should invest in stronger identity checks and continuous monitoring stop fraud before it spreads, the companies argue. The full report “The Synthetic Identity Crisis: Detection, Prevention, and the AI Arms Race” can be read here.

Article Topics

AI fraud  |  fraud prevention  |  Mitek  |  synthetic identity fraud