Rise in Online Fraud: The Dangers of Synthetic Identities

Online fraud is on the rise, with cybercriminals increasingly employing synthetic identities to commit various forms of fraud. These identities, which are often a blend of real and fabricated information, pose significant challenges to businesses and individuals alike.

Experts predict that the global wave of cybercrime will continue to escalate in the coming years. Many criminals are managing to conceal their true identities behind these invented personas, complicating detection efforts. According to specialists in fraud and identity from Lexis Nexis Risk Solutions, synthetic identities are becoming a prevalent trend worldwide.

Data leaks serve as a primary resource for these fabricated identities, with information available on the dark web. Criminals typically combine fictitious names with real data such as authentic credit card numbers, addresses, and phone numbers. In some cases, they may even use stolen social security numbers, particularly in the United States.

There are various methods by which criminals create false identities. Some may generate entirely synthetic identities using artificial intelligence, while others may digitally assemble different existing identities. Regardless of the method, the outcome remains the same: it becomes increasingly challenging to identify and apprehend these offenders.

Since the onset of the COVID-19 pandemic, there has been a notable increase in online fraud, as highlighted by various cybersecurity experts. The use of synthetic identities has become more prevalent than traditional identity theft, as stolen identities may risk being reported quickly by the actual individuals.

Criminals utilize synthetic identities to establish accounts in online commerce or to apply for credit cards, minimizing the likelihood of detection. For instance, in the banking sector, these identities are often used to create mule accounts for money laundering, where there is no real individual to report suspicious activity.

Online shopping platforms are a significant target for these fraudulent activities. The German Trade Association reports that identity fraud is one of the most common scams in e-commerce. A recent survey indicated that 92% of German online businesses had encountered customers using false or stolen identities. Criminals frequently place orders using stolen information and arrange for deliveries to parcel lockers or vacant properties.

Even a few genuine data points, such as a name and date of birth, can be sufficient to forge a synthetic identity that appears legitimate during online transactions. Consequently, the technical and financial burden on online retailers to verify customer identities and filter out fraudsters has increased significantly.

Fraud in online commerce is now a leading cause of losses in the cyber insurance sector for individuals. This type of cybercrime has become an entry point for many novice criminals, who may purchase instructions and tools from more established organizations.

Artificial intelligence plays a critical role in enhancing the efficiency of these fraudulent operations, enabling the mass distribution of phishing emails and the creation of new malware. This technological advancement suggests a rising frequency of cyber incidents in the future, with businesses potentially facing severe repercussions, including bankruptcy, especially those already struggling financially.

Estimates on the financial impact of cybercrime vary widely, with damages reaching into the billions. However, precise figures are difficult to determine, as law enforcement agencies typically do not distinguish between online and offline offenses in their statistics.

Currently, about three percent of online retail orders are believed to be fraudulent. Among German online retailers surveyed, 43% reported losses due to fraud ranging from EUR10,000 to EUR100,000, with a notable percentage suffering losses exceeding EUR100,000.

A significant challenge in combating cybercrime is the lack of international standards for identity authentication and verification. Many criminals operate across borders, and without a unified approach, efforts to mitigate these threats remain fragmented. Industry leaders emphasize the need for a consistent, international framework to address identity verification effectively.