Fraud has changed dramatically over the last decade. Today’s scammers don’t just steal identities anymore; they build entirely new ones.
This tactic, known as synthetic identity fraud, combines real personal information with fake details to create fictional people who can pass identity checks, open accounts, and build credit histories. And as more businesses move online, synthetic fraud is becoming one of the hardest financial crimes to detect.
Data breaches, remote onboarding, AI-generated content, and easy access to stolen personal data have all contributed to the rapid rise of this threat. In fact, KPMG once described synthetic identity fraud as a multi-billion-dollar problem, and the losses continue to grow every year.
Here’s how synthetic identity fraud works, why it’s so dangerous, and what businesses can do to stop it.
What is synthetic identity fraud?
Synthetic identity fraud happens when criminals create a fake identity using a mix of real and fabricated information.
A fraudster might steal a legitimate Social Security number (SSN), for example and combine it with a fake name, address, phone number, date of birth, or AI-generated face image. The result is a completely new identity that doesn’t belong to a real person.
Unlike traditional identity theft, where criminals impersonate an existing victim, synthetic identity fraud creates a brand-new “person.”
Fraudsters often attach their own email addresses and phone numbers to these identities so they can control accounts, receive verification codes, and eventually withdraw funds.
The real data used in synthetic identities usually comes from:
- Data breaches
- Phishing attacks
- Malware infections
- Dark web marketplaces
- Leaked databases
Even a single stolen data point, like an SSN, can be enough to create a believable synthetic identity.
Synthetic identity fraud vs. traditional identity theft
Although the two are related, synthetic identity fraud works very differently from traditional identity theft.
Traditional identity theft
Traditional identity theft involves stealing and using the identity of a real person.
Criminals gather personal information such as:
- Full name
- Address
- Date of birth
- SSN
- Banking details
They then use that information to access existing accounts or open new ones.
In most cases, the victim notices the fraud quickly because their accounts are drained, unauthorized purchases appear, or debt collectors begin calling.
Synthetic identity fraud
Synthetic identity fraud takes a slower, more calculated approach.
Instead of stealing a complete identity, fraudsters combine real data with fake information to build a fictional persona.
For example, they may pair:
- A real SSN
- A fake name
- A fake date of birth
- A newly created address
Sometimes, criminals use children’s SSNs or identifiers belonging to deceased individuals because those records are less likely to trigger immediate suspicion.
The goal isn’t instant profit. Fraudsters spend months, or even years, building trust.
They apply for small credit products, make payments on time, and slowly establish a positive credit history. Once lenders trust the synthetic identity, criminals “bust out” by maxing out credit lines and disappearing.
Why synthetic identities are difficult to detect
Synthetic identity fraud is especially dangerous because there’s often no obvious victim.
With traditional identity theft, a real person eventually notices suspicious activity and reports it. Synthetic identities, however, don’t belong to anyone.
That creates major detection challenges.
Synthetic profiles also tend to resemble people with limited financial histories, such as:
- Young adults
- Students
- Immigrants
- Individuals new to credit systems
Credit bureaus may unintentionally help establish legitimacy by generating credit files for these fake identities.
Once a synthetic identity enters the financial ecosystem, it can blend in surprisingly well.
Which businesses are targeted?
Financial institutions remain the primary targets of synthetic identity fraud.
Banks, lenders, fintech platforms, and credit issuers are especially vulnerable because fraudsters can exploit remote onboarding systems to apply for:
- Credit cards
- Personal loans
- Buy now, pay later services
- Business financing
Criminals often begin with small transactions to build credibility before escalating to larger fraud schemes.
However, financial organizations aren’t the only targets.
Synthetic identities are also used across:
- E-commerce platforms
- Gig economy marketplaces
- Online gaming services
- Telecommunications companies
- Digital payment providers
- Subscription-based services
Fraudsters use fake identities to create merchant accounts, abuse promotional offers, bypass platform restrictions, and conduct unauthorized transactions.
As digital services become more accessible globally, synthetic identity fraud continues spreading far beyond banking.
Why synthetic identity fraud keeps growing
Several factors continue to fuel the rise of synthetic identity fraud.
Massive data breaches
Every major data breach gives criminals fresh material.
Names, addresses, birth dates, SSNs, and login credentials are regularly exposed online. Even incomplete datasets can help fraudsters construct synthetic identities.
Remote onboarding
Digital-first customer onboarding has become standard across industries.
While remote onboarding improves convenience and conversion rates, weak verification flows can make it easier for synthetic identities to slip through.
AI-generated content
Artificial intelligence has made fraud far more sophisticated.
Criminals can now generate realistic:
- Face images
- Identity photos
- Documents
- Voice samples
- Deepfake videos
This allows synthetic identities to appear increasingly convincing during remote verification checks.
Weak identity verification systems
Organizations that rely on basic document uploads or outdated verification methods are especially vulnerable.
Without layered identity checks, synthetic identities can remain undetected for years.
How synthetic identity fraud works
Synthetic identity fraud usually follows a long-term process.
Step 1: Stealing real information
The scheme starts with obtaining legitimate personal data.
SSNs are especially valuable because they help synthetic identities appear legitimate inside financial systems.
Fraudsters often target:
- Children
- Elderly individuals
- Deceased persons
- People with limited credit histories
Step 2: Creating the fake identity
Next, criminals combine stolen data with fabricated details.
They may invent:
- Names
- Addresses
- Phone numbers
- Email accounts
- Employment histories
Some even use AI-generated profile photos to strengthen the illusion.
Step 3: Establishing a credit profile
At first, synthetic identities typically have no credit history.
Fraudsters solve this by applying for small lines of credit or becoming authorized users on existing accounts.
Even rejected applications can help establish a financial footprint.
Step 4: Building trust
Over time, criminals carefully nurture the fake identity.
They make small purchases, repay balances, and gradually increase their creditworthiness.
This process can continue for months or years.
Step 5: Bust-out fraud
Once the synthetic identity gains access to significant credit, criminals cash out.
They max out credit cards, withdraw funds, or take large loans before disappearing entirely.
Because the identity isn’t tied to a real individual, recovery becomes extremely difficult.
Why children’s identities are frequently targeted
Children are particularly attractive targets for synthetic identity fraud.
Most minors don’t actively use their SSNs or monitor their credit reports, which gives criminals years to operate unnoticed.
A child’s SSN can effectively function as a “clean slate.”
Fraudsters may create synthetic identities using children’s data and allow those profiles to mature quietly over time. By the time the victim reaches adulthood, substantial damage may already exist.
Signs of synthetic identity fraud
Detecting synthetic identity fraud isn’t easy, but certain warning signs can help organizations spot suspicious activity earlier.
Unusual credit behavior
Synthetic identities may show:
- Rapid credit score growth
- Thin or inconsistent credit histories
- Recently created accounts with high activity
- Multiple identities connected to one address
Missing public records
A legitimate SSN paired with no supporting public records can be suspicious.
For example, there may be no:
- Tax records
- Voter registration
- Utility history
- Property ownership
Behavioral inconsistencies
Advanced fraud detection systems can identify subtle mismatches in:
- Income information
- Employment details
- Device usage
- Geolocation
- Login behavior
These inconsistencies often reveal synthetic activity before major fraud occurs.
How businesses can prevent synthetic identity fraud
There’s no single solution for stopping synthetic identity fraud.
The most effective defense combines identity verification, fraud analytics, biometric technologies and continuous monitoring.
Strengthen identity verification
Organizations should verify more than just the uploaded ID document.
A strong identity verification process should confirm:
- The document is genuine
- The user matches the document photo
- The applicant is physically present
- The identity information is consistent
- The person isn’t linked to sanctions or watchlists
Biometric verification and liveness detection play a critical role here.
These technologies help organizations confirm that:
- A real human is present
- The selfie isn’t stolen
- The session isn’t a replay attack
- Deepfakes or masks aren’t being used
Use government and database checks
Businesses can strengthen onboarding by validating identity information against trusted government sources.
In the US, services such as:
- Social Security Number Verification Service (SSNVS)
- Consent-Based SSN Verification (CBSV)
allow organizations to verify whether an SSN matches the provided name and date of birth.
While these systems don’t fully verify identity, they can help expose mismatched information.
Adopt layered fraud prevention
Synthetic identity fraud often succeeds because organizations rely on a single verification step.
A layered security approach is far more effective.
This can include:
- Multi-factor authentication (MFA)
- Behavioral analytics
- Device fingerprinting
- Risk-based authentication
- Continuous account monitoring
- Zero-trust security models
The more signals organizations analyze, the harder it becomes for synthetic identities to survive undetected.
Educate employees and customers
Human awareness still matters.
Fraud teams should understand:
- Common synthetic identity patterns
- Bust-out indicators
- Behavioral red flags
- Emerging AI-driven fraud tactics
At the same time, educating customers about identity theft and data security helps reduce the amount of compromised information available to criminals.
Final thoughts
Synthetic identity fraud has evolved into one of the most complex forms of financial crime.
By blending stolen personal information with fabricated details, fraudsters can create highly convincing identities capable of bypassing weak verification systems and remaining active for years.
As remote onboarding, digital payments, and AI-generated content continue growing, businesses need stronger defenses than ever before.
Preventing synthetic identity fraud requires a layered identity verification strategy that combines document authentication, biometric verification, liveness detection, behavioral analytics, and ongoing fraud monitoring.
Solutions like Regula Face SDK help organizations confirm that an identity belongs to a real, physically present person. Advanced liveness detection can identify spoofing attempts involving stolen photos, replay attacks, deepfakes, or even 3D masks.
In a digital world where fake identities are becoming increasingly realistic, strong identity verification is no longer optional; it’s essential.
