The Invisible Synthetic Identity Heist

With the advent of modern challenges and generative artificial intelligence (GenAI) tools, we’ve seen an increase in tools that fuel fraudsters’ malicious intent, making their efforts appear as genuine as possible. This has led to a rise in phishing, pharming, and whaling, which expose consumers’ sensitive information. Additionally, the emergence of GenAI-aided vishing, or voice phishing, presents a common enemy preying on consumers’ sensitive information. The amount of information a consumer shares over social media—personally identifiable information (PII) or non-PII terms—makes it easier for fraudsters to establish a fake account’s credibility.
For merchants, it’s no longer just about onboarding new accounts – it’s about establishing credibility for new profiles by extensively validating them against super-fast and intelligent tools. The daunting task remains: how to identify genuine transactions versus fraudulent ones? And if a genuine transaction later turns out to be fraud, who makes that distinction?

Thomson Reuters reported that 95% of synthetic identity fraud occurs during onboarding. TransUnion reported a 132% growth in synthetic identity fraud in 2022. For a merchant, each new established account adds to their brand reputation. But now, these accounts are under a new threat. Regardless of their business type, merchants must ensure a seamless onboarding experience, as it could very well be a genuine customer.
Equally, merchants must understand key trends in the market – for example, using ACI’s intelligence.

In the third quarter of 2023, fraudsters used bot attacks and Account Takeover attempts to validate legitimate credentials to build credible yet fake profiles. ACI^® Fraud Management solution™ detected and prevented these attacks, which impacted slightly over 2% of the overall transaction volume, increasing synthetic identity fraud in the fourth quarter.

What do the fraudsters want?

Revenue! Money!  

The average ticket value was nearly $1,800 higher than the median value of the fraud attempts.

Synthetic identity supports fraudsters in establishing fake, yet credible profiles. Taking it up a notch, this helps fraudsters to request short-term loans—hence the higher average ticket value—and is a significant threat to merchants’ annual revenue.
Merchants are under constant threat of losing revenue, needing to increase security for a seamless journey. But this builds more friction at checkout, and ultimately risks their identity , which could drive consumers away, a pivotal turning point in a merchant’s lifecycle in today’s competitive market. The importance of shared intelligence has never been greater. But what does it mean?

Like a sports car, where all mechanical and electrical parts must work in sync with precise fuel injection to power up and win the race, a fraud management tool is a turbocharger that boosts a merchant’s payment engine. It’s no longer just about adding to the list of existing accounts– it’s about ensuring that each account is validated in real time using multiple tools. Alongside building an account, intelligent platforms enable a merchant to validate behavior, leverage historical data-building pattern predictions, verify digital identity, and ensure one-click checkout – the essence of precision. And the foundation of precision comes from shared intelligence.

Now, it’s time to understand the racetrack. Each recorded performance optimizes for errors or issues, and this is shared intelligence. Each customer represents a transaction, but not every transaction represents a customer. In the payments world, enabling a vast data consortium leads to understanding each customeracross various sectors without sharing sensitive information, supporting merchants in building profiles, and establishing trust. With advanced tools and technology, a merchant can make sense of this data and consortium and unveil the power of precision.
While the industry is on the right path to empower and secure each merchant, it is essential to consider the following core components to accelerate your journey:

• End-to-end orchestration: Streamline workflows and integrated systems and empower these systems to monitor each transaction in real time—from the moment they log in, until post-checkout—to identify anomalies or suspicious activities that lead to synthetic identity fraud.
• Data and network intelligence: Share signals and intelligence among key merchants without sharing PII information, aiding the payments engine to make decisions at the speed of light, reducing human intervention for challenges, and minimizing chargebacks.
• Predictive analytics: Advanced machine learning technology is essential to make sense of historical data to increase predictability and identify anomalies that could lead to synthetic identity fraud.
• Regulation advancement: In the unknown territory of sophisticated AI threats, regulatory bodies play a pivotal role in implementing mandates and regulating shared information, bolstering a unified front against fraudsters to mitigate synthetic identity threats.
• Consumer education: While merchants, tech and telco giants, and governments unite to fortify themselves against new and emerging threats, consumers need regular information on best practices for maintaining their accounts. For some, it may mean changing accounts or adding a second layer of authentication. Each layer makes it more challenging for fraudsters to capitalize.
• Technology integration: A critical component of any platform is to enable easy integration into the existing system(s), which is essential for different systems to make sense of the data and to drive revenue while mitigating threats. Bringing it back to the sports car, adding big wheels would increase drag and friction, making it slower. It’s important to add light, yet sturdy, wheels to accelerate.

Yes, consumer education is necessary to mitigate threats and to educate them on rising concerns, but equally, merchants must be at the top of their game. Fraudsters are leveling the playing field, and we are just seeing the tip of the iceberg with new GenAI threats at play. Merchants need to build a lasting reputation with a partner that can open access to intelligence, data, data science, and dedicated support, while at the same time shielding themselves, future-proofing their revenue, and delighting their customers with seamless experiences.

ACI enables and educates our customers to build a shield against emerging threats and craft precise profiles to make sense of data, leverage the power of signals, and achieve precise decision-making skills through our patented AI technology. Serving more than 80,000 merchants, directly and indirectly, ACI empowers the payments platform with a vast data consortium that supports predictive modeling, spotlighting any underlying threats that could cause revenue drainage.