Synthetic Fraud Threatens UK with £4.2 Billion Loss by 2027
In an alarming revelation, the UK is home to nearly three million “Frankenstein” identities, a rapidly growing menace that threatens to cost businesses billions of pounds. According to research conducted by LexisNexis Risk Solutions, these synthetic identities exploit stolen and fabricated personal information to create convincing yet fraudulent profiles. This emerging form of fraud could cost the UK economy £4.2 billion by 2027 unless companies adopt more stringent screening measures.
The Mechanisms of Synthetic Identity Fraud
Synthetic identity fraud, often referred to as “Frankenstein cloning,” involves merging actual and fictitious personal details to create new identities that can pass credit checks and defraud financial institutions. LexisNexis Risk Solutions’ analysis of over 72 million consumer profiles identified 2.8 million that exhibited several high-risk indicators of such fraudulent activities. This includes the absence of family connections and multiple similar identities residing at the same address.
Fraudsters typically start by nurturing these synthetic identities, gradually building up a seemingly legitimate credit history. Noreen Altaf, Lead Market Planning Manager of Fraud at LexisNexis Risk Solutions, explains, “At first, a synthetic ID has little value to a fraudster. It has no credit history, so they need to play the long game. Scammers nurture each false identity by building what appears to be a real credit profile over time, making the synthetic ID seem like a trustworthy customer.” This meticulous cultivation renders synthetic identities virtually invisible to existing fraud defences until the fraudsters decide to cash out, leaving organisations to suffer losses.
The US has faced significant challenges with synthetic fraud, reporting an average loss of $15,000 per confirmed case. Translating these figures to the UK, LexisNexis estimates that synthetic fraud could result in £4.2 billion in losses by 2027. The study found evidence of fraudsters using “synthetic farms” in rural areas and “synthetic factories” in urban settings to build up the credit scores of these fake identities systematically. For instance, a farm in Chichester was found to have 439 suspect identities over seven years, with only 22 showing signs of being real people. Similar fraudulent activities were identified in other rural and urban locations across the UK, indicating a widespread and organised effort to exploit synthetic identities.
The Invisible Threat
One of the most insidious aspects of synthetic identity fraud is its invisibility to current fraud detection systems. These synthetic identities appear as regular customers until they commit fraud; at this point, they “bust out” and disappear, leaving lenders with irrecoverable debts. “Once a fraudster thinks the synthetic ID has enough plausibility, they’ll aim to max out available credit lines,” says Noreen. This might involve applying for loans, credit cards, vehicle financing, or high-value purchases on buy-now-pay-later schemes, all with no intention of repayment.
The Urgent Need for Enhanced Defences
Given the sophisticated nature of synthetic identity fraud, traditional fraud detection measures are proving ineffective. Noreen emphasises the need for businesses to invest in advanced tools to identify synthetic identities at the application or onboarding stage. “Businesses need to act fast to protect themselves by investing in tools capable of spotting synthetic identities at the application or onboarding stage before they become customers,” she advises. This proactive approach mitigates synthetic fraud’s risk and financial impact.
Conclusion: A Call to Action
The rise of synthetic identity fraud represents a significant and growing threat to UK businesses. Organisations must update their fraud detection and prevention strategies as fraudsters continuously evolve tactics, leveraging more sophisticated methods to create and exploit synthetic identities. By investing in advanced screening technologies and regularly reviewing existing customer portfolios, businesses can better safeguard themselves against this invisible and costly threat. The warning from LexisNexis Risk Solutions is clear: without immediate and robust action, the financial consequences for the UK economy could be devastating.
