As digital payments continue to evolve, so too do the threats that accompany them. Synthetic identity fraud is a complex and rapidly growing form of financial crime that’s increasingly difficult to detect using traditional methods. With global fraud rates
rising and criminals leveraging technology to exploit system weaknesses, it’s imperative that financial institutions and merchants stay a step ahead.
Recent data from Experian underscores the alarming growth of this threat. Analysis of confirmed fraudulent
and potentially fraudulent credit applications in the UK shows that there was an increase of 60% in false identity cases in 2024, with these cases now accounting for 29% of all identity fraud incidents.
What is synthetic identity fraud?
Synthetic identity fraud, also known as Frankenstein ID, occurs when fraudsters create new, fictitious identities by combining real and fabricated information. Unlike stolen identities, which rely on a person’s actual details, synthetic identities blend
elements such as real social security numbers (often from children or deceased individuals) with fake names, addresses and other credentials.
Mastercard’s research highlights the evolving nature of this threat. It
often starts slowly with fraudsters using the synthetic identity to open low-risk accounts and make regular payments to build a positive credit history. Over time, this activity makes the fake identity appear legitimate in the eyes of financial institutions.
Once credit limits increase, fraudsters exploit the established profile by maxing out accounts and becoming unresponsive in communications, leaving financial institutions with unpaid balances and limited avenues for recovery. This makes synthetic fraud both
financially damaging and extremely difficult to trace, without a clear trail or suspect to investigate.
Biometric authentication: raising the bar for security
To combat these sophisticated attacks, the payments industry is increasingly turning to biometric authentication as a key defence mechanism. Biometrics, such as fingerprint scanning, facial recognition and behavioural analysis, provide a level of identity
verification that is difficult to forge and frictionless for the end user.
When paired with technologies like 3D Secure 2 (3DS2), biometric authentication becomes even more powerful. 3DS2 natively supports biometric factors, enabling issuers and merchants to offer secure, low friction authentication at checkout. This is critical
for reducing false declines, lowering cart abandonment and ultimately preserving trust.
Crucially, biometrics create a barrier that synthetic identities struggle to bypass. Because these systems rely on attributes inherent to the individual rather than information that can be fabricated, they strengthen defences against increasingly complex
forms of fraud. By anchoring security in “who the customer is” rather than “what they know,” businesses not only mitigate risk but also deliver the smooth experiences customers expect, ultimately reinforcing trust at every transaction.
From a risk perspective, biometric authentication also strengthens fraud monitoring by reducing the reliance on static credentials that criminals can easily exploit. Unlike passwords or security questions, biometric identifiers are far harder to obtain or
reuse, significantly narrowing the avenues for attack. This makes it particularly effective in countering synthetic fraud, where fraudsters combine real and fabricated data to bypass traditional checks. Because biometric data ties directly to an individual,
attempts to use synthetic identities are more likely to be flagged during the authentication process. For businesses, this translates into fewer successful fraudulent transactions, lower chargeback volumes and a more resilient overall security posture without
compromising the customer journey.
Addressing vulnerabilities with proactive measures
While consumer awareness plays a pivotal role in reducing fraud, businesses should also pay attention to areas where additional safeguards are beneficial. Mail Order/Telephone Order (MOTO) transactions, for example, are attractive to fraudsters if not carefully
managed.
By applying enhanced verification practices, clear internal policies and ongoing monitoring, merchants can continue to offer MOTO payments securely while minimising potential misuse. Strengthening these processes reinforces a comprehensive defence against
synthetic identity fraud.
Partnering for a safer payment ecosystem
As the line between legitimate and fraudulent transactions becomes increasingly blurred, it’s clear that legacy fraud detection tools are no longer sufficient. Synthetic identity fraud, in particular, demands a multi-layered approach, as discussed earlier.
At the same time, businesses must be vigilant in monitoring chargeback trends and investing in educating consumers. Awareness campaigns that help consumers recognise red flags, such as suspicious account activities, phishing attempts, or requests for personal
information, significantly reduce the chances of fraud succeeding in the first place.
Consumer education matters because informed individuals are less likely to fall victim to schemes that ultimately drive fraudulent transactions and chargebacks. By empowering customers to protect themselves, merchants reduce their exposure to losses while
fostering trust and loyalty.
With the boundary between legitimate and fraudulent transactions becoming increasingly blurred, relying on legacy fraud detection tools is no longer enough. Synthetic identity fraud, in particular, requires a multi-layered response that combines technology,
education and collaboration.
Businesses must remain alert to chargeback trends while also investing in consumer awareness. Campaigns that help individuals spot warning signs, such as unusual account activity, phishing attempts or suspicious requests for personal data, significantly
reduce the likelihood of fraud succeeding. When customers understand the risks and how to protect themselves, they become an active part of the defence, which in turn lowers losses and strengthens trust.
Partnerships are equally critical. Working with trusted payment providers allows businesses to implement robust prevention strategies without compromising the customer experience. The right partners offer more than technology: they help craft tailored fraud
rules, provide expert advice on chargeback management and deliver timely insights on emerging threats. Together, these efforts create a resilient payment environment where both merchants and consumers feel protected.
