How Lenders can Use Alternative Data to Identify Synthetic Identities

How Lenders can Use Alternative Data to Identify Synthetic Identities

Alternative Data
Apurwa Sarwajit
Apurwa Sarwajit

May 8, 2023

Alternative lending – disbursing loans through digital lending platforms – is on the rise as individuals, as well as small and medium businesses can seek small loans at competitive interest rates through online platforms or apps. Alternative lending is a rapidly growing segment in the fintech sector with global growth estimated to reach $407.80 billion by 2027. The digital lending market in India is also witnessing rapid growth, and is expected to reach $350 billion by 2023 from around US$ 110 billion in 2019.

However, this market growth has resulted in fraudsters hyper targeting the lenders for illegitimate financial gain. Hiding behind the anonymity that the internet offers, fraudsters are cobbling together synthetic identities to attack these lenders.

What is a synthetic identity?

Synthetic identities are fraudulent user identities that are stitched together using stolen consumer PII (personally identifiable information) and fictitious pieces of data. It is estimated that synthetic identity fraud costs financial institutions anywhere between $6 billion and $20 billion every year.

Attacks launched using synthetic identities are particularly difficult to counter, as the user trail leads the affected business on a wild goose chase, as there is no real user associated with such an identity.

Red flags that indicate synthetic identity fraud

Telltales exist that can help lenders identify synthetic identities to trigger deployment of appropriate countermeasures and prevent attackers from causing damage. Some of the indicators of a possible synthetic identity are as described below:

  • Inconsistencies in personal information: Synthetic identities often contain inconsistent personal information such as mismatched names, addresses,and government identifiers, like PAN in India and social security numbers in the U.S.. The information may also be incomplete or have other errors.
  • Lack of credit history: Synthetic identities may not have any credit history, or the credit history may be limited. This can make it difficult for lenders to assess the creditworthiness of the applicant.
  • Unusual or suspicious behavior: Synthetic identities may exhibit unusual or suspicious behavior such as applying for multiple credit cards or loans in a short period of time, using different phone numbers or addresses, or providing false employment or income information.

Use alternative data to root out  synthetic identities

While the aforementioned indicators are good red flags, they cannot deterministically prove the use of synthetic identities. It is, therefore, important that lenders engage suspicious users in further investigation using robust fraud detection and prevention measures.

Alternative data, which is often used in credit risk decisioning, also can be a powerful tool in detecting and preventing synthetic identity fraud. Here are a couple of examples. Social media data - a type of alternative data - can be used to verify information provided by the applicant. If an applicant provides a certain address as their residence, social media data can be used to verify whether the applicant actually lives at that address. 

An applicant's email address, also an alternative data source, can help suss out a synthetic identity. For example, lenders can tap into our Identity Bureau combined with our alternative data product to determine if an applicant’s email address is associated with a known synthetic identity or if it has been used for other fraudulent activity.

Finally, transactional data can provide businesses with patterns when it comes to payment behavior for consumers. For example, a consumer with no credit history suddenly emerges at age 37 and applies for a large loan or credit card could be a case of synthetic identity fraud. Another example is when an identity is buying something (typically a luxury item) that is unusual for that person’s buying behavior. 

Uncover the real identity of a prospective borrower

Combining alternative data with data obtained from traditional sources can enable lenders to gain better insights that can be used to build a more complete picture of an applicant's financial behavior, which can facilitate identification and prevention of synthetic identity fraud.

Bureau’s proven expertise in leveraging alternative data, specifically device fingerprinting and behavioral biometrics, helps leading lenders proactively identify and protect their platforms from synthetic identity fraud. To learn how your business can specifically ward off synthetic identity fraud,contact us now.

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