Synthetic Identity Fraud on the Rise Due to COVID-19: What You Need to Know
by: The Knowledge GroupSeptember 01, 2020
When you think of all the challenges that the COVID-19 pandemic has created, an increase in synthetic fraud may not be the first thing that comes to mind. However, amidst the chaos, fraudsters have found an opportunity to take advantage of vulnerable companies.
In order to help their customers navigate these financially difficult times, many banks have implemented policies such as relaxed collection efforts, loosened payment strategies, more forgiving overdraft policies, and more tolerance for exceeding credit limits. However, these same consumer-friendly policies that are very helpful to customers who are having a difficult time financially also make it much easier for fraud to take place.
Synthetic fraud – a form of identity theft where a combination of real and fake information is used to create a fraudulent account – was on the rise even before COVID-19 struck. Counterfit credit card fraud, for example, rose nearly 40% from 2014 to 2016. Now, though, with relaxed policies working in their favor, criminals committing synthetic fraud are having an easier time than ever before using false information to make fraudulent purchases.
Combatting this rise of synthetic fraud is just one of many challenges that financial institutions will have to overcome as they continue to navigate the treacherous waters that COVID-19 has created. Leaning on technology such as AI in order to confirm the authenticity of a customer’s information is one possible solution that these institutions were starting to take advantage of even before the pandemic broke out. For now, though, the criminals committing fraud are the ones who hold the advantage.
If financial institutions hope to limit synthetic fraud while still offering relaxed policies to their customers, a multi-faceted approach is required. Fraud detection and mitigation strategies must be layered into these new policies. If there is any silver lining to be found, though, it’s the fact that an increased focus on preventing fraud is something that will continue to benefit financial institutions even after the effects of COVID-19 have been diminished.
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