What Is Synthetic Identity Fraud?
Synthetic identity fraud occurs when criminals create entirely new identities by combining real personal information (like a legitimate Social Security number) with fabricated details (fake names, addresses, and dates of birth). These phantom identities are then used to open accounts, build credit, and make fraudulent purchases.
Unlike traditional identity theft where a real person’s identity is stolen, synthetic identities have no single victim to report the fraud, making detection extremely difficult.
How Synthetic Identity Fraud Works
Identity Construction
Criminals combine:
- Real SSNs (often from children, elderly, or deceased individuals)
- Fabricated names and dates of birth
- Rented or virtual mailbox addresses
- Temporary phone numbers and email addresses
Credit Building
The synthetic identity is used to apply for credit, building a legitimate-looking credit history over months or years.
The Bust-Out
Once credit limits are high enough, the criminal maxes out all available credit, purchases high-value goods, and disappears. The “person” never existed, so there’s no one to collect from.
Ecommerce Application
In ecommerce, synthetic identities are used to:
- Create customer accounts that pass verification
- Make purchases with fraudulently obtained credit cards
- Exploit new customer promotions repeatedly
- Abuse return and refund policies
Warning Signs
- New accounts with perfect checkout behavior - Too smooth, suggesting automation
- Shipping to addresses associated with mail forwarding services
- Multiple accounts with similar data patterns (sequential emails, similar names)
- Orders that pass fraud checks but result in chargebacks weeks later
- Customer profiles with no social media or web presence
Business Impact
Delayed Detection
Synthetic identity fraud often goes undetected for months because there’s no real victim to report it. By the time chargebacks arrive, significant damage has occurred.
High-Value Losses
Synthetic identities are typically used for high-value purchases, making each incident costly.
Chargeback Complexity
Disputing chargebacks from synthetic identities is extremely difficult because the “cardholder” doesn’t exist to verify the purchase.
How SecurEcommerce Helps
Traffic Source Analysis
- Block VPN and proxy traffic used to create multiple synthetic accounts
- Identify datacenter IPs used for automated account creation
- Geographic blocking for regions associated with fraud rings
Pattern Detection
- Flag multiple accounts from similar IP ranges
- Identify accounts created with suspicious timing patterns
- Monitor for automated checkout behavior
Proactive Blocking
- Block known fraud infrastructure
- TOR blocking prevents completely anonymous account creation
- IP range blocking for identified fraud networks
Prevention Strategies
Account Creation
- Block VPN and proxy traffic during registration
- Require email verification with delay
- Flag accounts from datacenter IPs
- Monitor for batch account creation patterns
Order Verification
- Additional verification for high-value first-time orders
- Address verification matching
- Block anonymous traffic at checkout
- Geographic restrictions for suspicious regions
Ongoing Monitoring
- Track accounts with no repeat purchases
- Monitor for chargebacks from “new” customers
- Flag accounts with mail forwarding addresses
- Cross-reference account patterns for similarities