The cost of synthetic fraud will rebound in the post-pandemic era, claims a recent Aite Group study.
A recent research study by TransUnion finds instances of synthetic fraud as well as outstanding balances for critical, suspected fake accounts at US financial institutions have declined considerably after the COVID-19 pandemic was declared.
Conversely, the analysis by Aite Group reveals that the cost of synthetic fraud will rebound in the post-pandemic era – reaching new heights. In this digital era, synthetic identity fraud comprises fraudsters creating fictitious identities. They do it by piecing together fake information and accurate identity attributes with the intent to open fake accounts.
The dip in the synthetic fraud incidents amid the unprecedented times was a continuation of a previous study. In 2019, it was found synthetic fraud cases were slowing with the emergence of advanced solutions – which connect personal and digital identities.
Surprisingly, synthetic fraud plunged markedly for various credit products. The analysis of outstanding balances accredited to suspected replica identities (for the auto, personal loans, credit card, and retail credit card) found at their lowest levels ever since Q1 2016.
As per the latest statistics (Q3 2020 data) by TransUnion, synthetic fraud balances put up at $855 million in those sectors. This is down from $1.05 billion in Q3 2018. The study also found many instances of dipping fraud activities for two consecutive quarters (Q2 and Q3 of 2020).
During Q3 2020, the percent of new credit card accounts and auto loans linked to a synthetic fraudster dropped to their lowest points – since the researchers began tracking them in 2016. There has been an almost 32% decrease in new credit cards and about 23% decline for new auto loans connected to synthetic fraud. This is primarily from the period of Q3 2019 to Q3 2020.
Away from the financial services, which had the highest amounts of digital synthetic fraud last year, it determined e-commerce and iGaming as the following sectors with the highest amounts of synthetic fraud in 2020.
Regardless of the drastic drop in synthetic fraud in financial firms, the study indicates that the cost of such scams will increase in the coming years. The overall business losses because of the synthetic identity fraud (for unsecured US credit products) reached $1.8 billion in 2020, reports Aite Group. This will continue maturing up to $2.42 billion by 2023 – essentially valid for those that do not call for individuals or businesses to put up collateral for the loan.
Clearly, synthetic fraud is an extremely tricky challenge to solve. Out of the financial services firms that were recently being surveyed, nearly 72% indicated that they believe synthetic identities as a much more perplexing issue to recognize and address – compared to regular identity theft.
As Shai Cohen, SVP of Global Fraud Solutions at TransUnion, explained – “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.”