The rise of synthetic identity fraud

How businesses can detect one of the fastest-growing threats in financial crime

Fraud is becoming more sophisticated, more difficult to detect, and increasingly powered by technology. While identity theft has long been a concern for regulated businesses, a newer and more complex threat is rapidly gaining attention: synthetic identity fraud.

Unlike traditional identity fraud, where criminals steal and use the details of a real person, synthetic identity fraud involves creating an entirely new identity by combining genuine information with fabricated data. The result is a fictional individual that can appear legitimate enough to pass many verification and onboarding processes.

For organisations responsible for customer onboarding, compliance, fraud prevention, and risk management, understanding synthetic identity fraud is becoming essential.

What is synthetic identity fraud?

Synthetic identity fraud occurs when fraudsters combine real and fake information to create a new identity. For example, a criminal may use a legitimate address, phone number, or other personal details alongside a fictitious name and date of birth to create a seemingly genuine customer profile.

The aim is often not immediate gain. Instead, fraudsters patiently build credibility over time by opening accounts, establishing transaction histories, or creating a digital footprint before eventually exploiting financial products, committing fraud, or facilitating other forms of criminal activity.

This approach makes synthetic identities particularly dangerous because there is often no obvious victim reporting suspicious activity. The identity itself does not belong to a real person, making detection significantly more challenging than traditional identity theft.

Several trends are driving the increase in synthetic fraud:

Increased availability of personal data

Data breaches continue to expose large volumes of personal information. Criminals can use fragments of legitimate data obtained from compromised records and combine them with fabricated information to create convincing identities.

Digital-first customer journeys

Organisations are increasingly offering remote onboarding and digital account opening. While these processes improve customer experience, they can also create opportunities for fraudsters if robust identity verification controls are not in place.

Advances in artificial intelligence

AI tools now enable criminals to create realistic digital personas, generate convincing supporting documentation, and even produce deepfake imagery or video. These capabilities make synthetic identities harder to detect using traditional verification methods.

Growing financial opportunity

Synthetic identities can be used to obtain credit, open accounts, conduct transactions, or support money laundering activities. In some cases, fraudsters spend months or even years building credibility before exploiting the identity for maximum financial gain.

How synthetic identities bypass traditional checks

Many compliance and onboarding processes were originally designed to verify that information is valid, rather than determine whether an entire identity is genuine.

A synthetic identity may pass basic checks because:

• Individual data elements appear legitimate
• Documents seem authentic
• Contact details are active
• Credit profiles may gradually become established
• Activity patterns initially appear low risk

If organisations rely solely on document verification or database checks, they may miss wider indicators that suggest a synthetic identity is being used.

Key warning signs

While synthetic fraud can be sophisticated, there are common indicators that should trigger further investigation:

Inconsistent identity information

Small discrepancies between documents, databases, contact details, or application information can indicate synthetic activity.

Limited digital footprint

A customer claiming an extensive history may have very little verifiable online presence or transactional activity.

Rapid profile development

Accounts that suddenly begin accumulating multiple products, services, or transactions may warrant closer scrutiny.

Shared information across identities

Multiple customers using similar addresses, phone numbers, devices, or email patterns can indicate organised fraud.

Unusual behavioural signals

Application behaviour, device intelligence, and transaction patterns can reveal anomalies that traditional checks overlook.

The role of identity verification and compliance technology

Fighting synthetic identity fraud requires more than verifying a single document. Organisations need a layered approach that combines identity, risk, compliance, and fraud intelligence.

Modern solutions can help businesses:

• Verify identities using trusted data sources
• Conduct biometric and liveness checks
• Analyse device and behavioural signals
• Screen customers against sanctions and watchlists
• Detect suspicious patterns across multiple applications
• Continuously monitor risk throughout the customer lifecycle

This broader approach helps organisations distinguish genuine customers from sophisticated synthetic identities before losses occur.

Why ongoing monitoring matters

Synthetic fraud does not always reveal itself during onboarding.

A customer who appears legitimate today may become higher risk tomorrow due to behavioural changes, unusual transactions, or newly identified fraud indicators.

This is why ongoing monitoring is becoming a critical component of modern compliance programmes. Continuous oversight allows businesses to identify emerging risks and respond before fraud escalates.

Building stronger protection against synthetic fraud

Synthetic identity fraud sits at the intersection of fraud prevention, identity verification, and compliance. As criminals continue to exploit increasingly sophisticated techniques, organisations must move beyond basic verification methods and adopt a more comprehensive view of customer risk.

By combining identity verification, fraud intelligence, ongoing monitoring, and robust compliance processes, businesses can strengthen trust, reduce exposure to financial crime, and create onboarding journeys that are both secure and efficient.

The challenge is no longer simply proving that information is valid. It is proving that the person behind that information genuinely exists.

Interested in strengthening your protection against synthetic identity fraud? Veriphy provides identity verification, AML screening, sanctions monitoring, KYB checks, and compliance training solutions designed to help organisations identify risk, verify customers with confidence, and meet their regulatory obligations. Register your interest to hear about upcoming AML, fraud prevention, and compliance webinars from our experts.