Synthetic Identities are Still a Threat – How Your Financial Institution Can Protect and Be Protected in Today’s Digital Banking Era

Synthetic identities aren’t new. In 2020, the FBI listed synthetic identify fraud (SIF) as the fastest growing type of fraud in the United States. Over the past few years, as financial institutions have continued their digital transformation efforts, fraudsters have found clever new ways to get around secure digital banking solutions. In today’s digital era with most consumers transacting from outside the branch, banks and credit unions must continuously revisit their security protocols, safeguard their institutional data, as well as protect their account holders, for long-term success.

The thing about SIF

Today’s shift to digital landscapes has caused this type of complex, calculated fraud to resurface, where a fraudster collects real personally identifiable information (PII) and combines it with fake information to create a “new” identity – essentially, creating a “person” who doesn’t exist.  And with the surge in data breaches, this type of fraud is becoming easier to commit – PII, like social security numbers and residential addresses, are now readily available on the dark web.

Over time synthetic fraud has diversified and intensified, with fraudsters using fake identities to apply for loans and credit cards, take over accounts, and commit buy now pay later (BNPL) scams. Historically, banks were the targeted victims of this type of cybercrime, with losses of up to $6 billion and counting. In more recent years, credit unions, who largely have been able to avoid these scams, are now seeing more activity, placing a larger spotlight on the security of their digital banking platforms, and the need for increased member education on the topic.

Consumers are protecting themselves, but financial institutions can do more

With digital banking solutions commonplace, account holders proactively keep their financial information secure, but more education around best practices needs to be offered by their institutions to build trust and loyalty. 

According to a 2022 banking report by Quantum Metric, 45% of account holders still use a standard username and password to access their online banking accounts, and only 23% change their passwords once or twice per year. More than ever, it’s important for a digital banking platform to allow for configurable usernames and passwords, as well as for your institution to control specific security settings like the reuse of passwords and their required complexity to prevent account takeovers. Other security capabilities of your digital banking platform should be communicated and encouraged, like multi-factor or biometric authentication, which is said to stop nearly 99% of identify thefts and other cyber-attacks. 

Any fraudulent attack reflects poorly on a bank or credit union and causes customers and members to lose trust. In addition to secure credentials, permission and role-based access can help in the fight against fraud, enabling consumers and businesses to control who on their account can perform specific transactions. Being able to detect suspicious activity as soon as it happens is also important, paired with real-time alerts and system-based notifications when something seems suspicious.

Synthetic identify fraud can be difficult to prevent, but banks and credit unions can use mitigation tools, coupled with educating their customers and members, to thwart these risks. Protection and prevention are ongoing efforts that must be balanced with a simple and intuitive user journey. 

Alogent places a premium focus on data integrity and security, which is why NXT, our unified digital banking platform for consumers and businesses, leverages best practices, cutting-edge capabilities, and enterprise-grade security techniques. Guard your institution and account holders and show customers and members the importance you place on their online and mobile banking safety.

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