How to Protect your Financial Institution from Synthetic ID Fraud

On June 29, 2021, a 45-year-old-Flordia man pleaded guilty to stealing $24 million of COVID-19 relief money through synthetic identification (ID) fraud Their scheme did not happen overnight. Here’s how they did it…
Picture of Ravi Sandepudi

Ravi Sandepudi

February 10, 2022

Here’s What Financial Institutions Can Do

Years before the pandemic, fraudsters used virtualization machines and intricate computer data storage to manufacture synthetic identities and use them to open bank accounts and shell companies. When the pandemic hit, they took advantage of the crisis by fraudulently applying for financial assistance under PPP to amass millions of COVID relief funds by diverting the fund from the people who badly needed them.

Synthetic ID fraud is a rapidly evolving threat. In 2016, it cost lenders over $6 billion. In 2019, the FED called synthetic ID fraud, “the fastest-growing type of financial crime in the U.S.”

During the pandemic, the number of cases increased, affecting both government and non-government financial organizations, as well as private individuals who own the stolen personal information.

What Is Synthetic ID Fraud And Why Did It Become Rampant During The Pandemic?

The Federal Reserve defines synthetic ID fraud as “the use of a combination of personally identifiable information (PII) to fabricate a person or entity to commit a dishonest act for personal or financial gain.”

The PII elements that fraudsters use to manufacture synthetic identities include PII elements that are, in combination, typically unique to a profile or individual — including a person’s name, date of birth, Social Security Number (SSN) and other government-issued identifiers. They could also use “secondary” PII elements, which help enhance or substantiate the validity of one’s identity but cannot be used alone to establish identity. This includes a person’s billing or mailing address, phone or mobile number, email address, and digital footprint (e.g., face, e-signature, fingerprint).

Fraudsters obtain this set of information from various sources such as the “dark web” and unsecure databases. They mix real PII with fake ones to create a non-existing persona they can use for payment default schemes, credit repair, and/or other criminal acts (e.g., money laundering, trafficking, and terrorist financing).

According to experts, the global crisis created “an ideal environment to commit fraud,” and this is the reason the number of cases soared during this time. Lockdowns and stricter health protocols spurred enterprises and consumers to accelerate their shift to digital. According to BankDirector, even as digital account opening has surged since the pandemic (25% ↑ YOY), the total high-risk applications have increased as well (by nearly 140%).

The influx of cash benefits during the pandemic is also a factor. Fraudsters took advantage of this by applying for cash benefits using synthetic identities.

Why Financial Institutions Should Care, And What They Can Do

Aside from the money stolen, there are many other losses individuals, entities, and financial institutions will suffer from if they get victimized by synthetic ID fraud. The impact can be long-term in that it can tarnish the financial institution’s reputation and result in customer churn and/or loss of public trust. With the expansion of FI’s competitive landscape today, customers can easily switch to a competitor.

So how can financial institutions win?

Fraudsters use sophisticated strategies and automation, and the only way to win against them is to also use advanced approaches. In a memorandum, the US House of Representatives Committee on Financial Services underscored the need to leverage next-generation technologies — such as Artificial Intelligence and Machine Learning — to optimize identity verification.

Non-AI solutions are not designed to continuously learn and execute on their own, making it laborious and demanding for financial institutions to mitigate synthetic ID fraud. Real-time fraud detection and monitoring require continuous and real-time processing of large amounts of data. Without AI/ML capabilities, this can become another source of frustration among fraud analysts, risk officers, and fraud managers.

This is why at Effectiv, we use an AI-powered orchestration platform to help financial organizations to protect their members and reputation. Our expert-build fraud solutions easily adapt to changing fraud trends and empower financial institutions to:

  • Easily harness data from various sources to enhance customer onboarding and accurately evaluate risk related to customers.
  • Automate and constantly optimize assessment using adaptive fraud models and intelligent analytics.
  • Automate manual decision-making for quicker customer onboarding, improved customer experience, and faster revenue generation.

What makes Effectiv’s orchestration platform different from other solutions is its holistic approach to fraud prevention. With one simple integration, all external fraud threats within an FI are covered – from Member onboarding to Account Takeover to ACH and Wire fraud. Using and extending it is simple; it does not require any level of IT skills. Financial institutions also do not have to contend with digital skills gaps because the no-code platform enables them to automate tedious manual tasks. This way, the fraud team of every FI can confidently focus on other value-adding activities, knowing that Effectiv’s solution handles fraud cost-effectively and innovatively.


Experts warn that the increase in synthetic ID fraud activities “[will likely continue] and potentially even grow when the pandemic eases.”

By using Effectiv’s AI-powered solution, financial institutions can keep fraudsters out and focus on innovation and serving customers.

Learn more about how Effectiv’s solution helps mitigate synthetic ID fraud at

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