The materials available in this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your own advisors with questions regarding the synthetic identity fraud content herein. The opinions expressed in this article are the opinions of the individual authors and may not reflect the opinions of MeridianLink, Inc.
By all accounts, Michael Smith appeared to be a typical, trustworthy bank customer. He applied for a few low-limit credit cards, made his payments on time, and built goodwill with his institution. Creditors saw his responsible habits and offered him higher credit limits. Everything seemed normal, no red flags in sight.
… Until the day that Mr. Smith took out a major loan, never to be heard from again, the only evidence of his “existence” being the empty account and fraudulent history left in his wake. How did he get away with it?
Because there never was a Michael Smith. Michael Smith is the most common name associated with synthetic identities, and the above scenario is an example of synthetic identity fraud, or synthetic fraud, in action.
Synthetic identity fraud is one of the fastest growing types of financial crimes in the US.
And if the above scenario is any indication, it’s tough for traditional fraud monitoring systems to detect. That’s because synthetic fraud combines real and fabricated personal information to create a new identity. One that can build credit records and seem legitimate at first glance. It often uses real social security numbers stolen and sold on the dark web or taken from recently deceased individuals and ties those numbers to false names, addresses, and/or dates of birth. It can also use real or slightly tweaked IDs, addresses, or DOBs.
This means that there’s not necessarily a clear victim in the crime. If the SSN of a real, living person is stolen to commit synthetic fraud, that person may not find out until years later, when they go to apply for a loan and are denied. If the personally identifiable information other than the SSN is fake, it’s very difficult to catch the culprits once they strike. And without a paper trail to follow, that leaves financial institutions to bear the brunt of the losses.
With synthetic fraud becoming increasingly pervasive and tactics growing more sophisticated, your financial institution needs to be prepared.
The hidden risk: Why legacy systems miss synthetic identity fraud.
A large part of that preparation involves having the right technology and third-party solutions to better detect synthetic identity fraud. This is where legacy systems frequently fail.
Legacy systems often rely on static rules that criminals exploit to stay below risk detection thresholds. Fragmented data, batch approach to verification, and simple identity verification methods can slow down or outright impede an institution’s ability to identify this type of fraud.
These factors make it difficult for legacy systems to link patterns across accounts over time. It’s also difficult to detect the subtle anomalies of synthetic fraud. For example, if the fraudster provides verifiable documents in addition to fabricated ones, they could pass the system’s KYC check. Without an integrated screening tool, staff may notice some unusual transactions within that account, but they may never realize it’s fraudulent nature.
What does this all mean? By the time the fraud is recognized, the damage is already done, and the money is gone. That’s why it’s crucial, now more than ever, to adopt technology that takes a proactive rather than reactive approach to synthetic identity fraud.
Mitigating the risk: How modern banking technologies catch what legacy systems can’t.
Many modern banking technologies, unlike their legacy counterparts, are better equipped to take that proactive stance against synthetic identity fraud. Between built-in features and integrations, modern systems often have capabilities including behavioral analytics, device fingerprinting, and AI pattern recognition to clock fraud the moment it’s attempted.
These systems are also typically well-integrated, as opposed to working with fragmented, isolated data like in legacy technology. This enables real-time insights across portfolios that can be used to reveal subtle inconsistencies in synthetic identity fraud. That data can also be used to perform retrospective analyses to uncover fraud that may be hiding in plain sight.
Trade your legacy system for a legacy of security.
Fighting synthetic identity fraud demands more than basic defenses—it takes proven, adaptable security solutions.
At MeridianLink®, we help financial institutions combat these threats through seamless integrations with a network of trusted identity verification and fraud protection technologies. These partnerships support capabilities such as real-time identity verification, knowledge-based authentication, device and behavioral analysis, and AI-driven risk detection.
By connecting our digital platform to these advanced tools, you can more accurately validate identities, detect suspicious activity earlier, and make faster, more informed decisions—all without adding friction to the consumer experience. This integrated approach strengthens fraud defenses across account openings, loan applications, and other critical financial touchpoints.
As fraud tactics evolve, so should your strategy. Learn more about how MeridianLink’s partner-powered solutions can help you stay one step ahead.
