TransUnion Analysis Reveals Alarming Trends in Fraudulent Activities
In the ever-evolving landscape of financial fraud, identity theft remains a persistent and growing concern. A recent analysis by TransUnion has shed light on the alarming surge of synthetic identity fraud, a particularly elusive and pernicious form of financial deception. As lenders grapple with the complex challenge of safeguarding their institutions, this report underscores the urgency of fortifying defenses against increasingly sophisticated fraudsters.
The Persistent Rise of Synthetic Identity Theft
Synthetic identity fraud involves the crafty manipulation of personally identifiable information (PII) to create fictitious identities for personal or financial gain. TransUnion’s extensive analysis, drawing insights from its global intelligence network, reveals a disconcerting trend: synthetic identity theft is on the rise, particularly in the auto finance sector. Incidents of synthetic identity fraud and the exposure lenders face as a result of this deception have both reached unprecedented levels.
While some industries have managed to keep their exposure to synthetic identity theft relatively stable or even decrease it, the auto finance sector has seen a significant surge. In the first half of 2023, U.S. auto lenders encountered a substantial increase in total synthetic identity exposure, reaching a staggering $1.8 billion.
This marks a striking 38% rise compared to the previous year and represents the second consecutive year of heightened exposure within the auto finance industry. This exposure metric encompasses the total credit amount that a synthetic identity can access for U.S. auto loans, bank credit cards, retail credit cards, and unsecured personal loans.
Fraud in the Auto Finance Industry
Fraudsters have honed their strategies and are turning to the auto finance industry as an attractive target for their illicit activities. Synthetic identity exposures in this sector far surpass those seen in any other industry, indicating that fraudsters perceive it as the most lucrative domain. They exploit synthetic identities to secure auto loans, often acquiring high-value vehicles and then disappearing without a trace, leaving lenders to bear the financial burden.
Shai Cohen, Senior Vice President and Head of Global Fraud Solutions at TransUnion warns, “Exposures associated with synthetic identities are significantly higher for the auto finance industry than those we see for any other industry, and that margin is likely to grow as fraudsters continue to gravitate toward the industry that they perceive as the most profitable to them. Fraudsters secure their auto loans with a synthetic identity, and drive away with expensive, new vehicles, never to be seen again.”
Comparing Lender Exposure by Industry
Here’s a snapshot of lender exposure associated with synthetic identities across different industries in the first half of 2023:
- Auto loans: $1.8 billion
- Bank credit cards: $994 million
- Retail credit cards: $126 million
- Unsecured personal loans: $57 million
The auto finance industry clearly stands out with the highest exposure to synthetic identity fraud, substantially surpassing the exposure seen in other sectors.
Digital Industries and Suspected Fraud Rates
The analysis also delves into suspected digital fraud rates across various digital industries globally. In the first half of 2023, the retail and video gaming industries exhibited the highest rates of suspected digital fraud, standing at 10.6% and 7.0%, respectively. Telecommunications followed closely at 5.3%. Overall, the suspected digital fraud rate for all industries increased to 5.3%, up from 4.5% a year ago.
Naureen Ali, Vice President of Product Management at TransUnion, emphasizes the importance of considering the industry’s size and growth when assessing the impact of digital fraud. She states, “When attempting to gauge the impact of digital fraud for any industry, fraud rates alone are an insufficient measure. It’s important to look at the industry’s overall size based on the total number of transactions, along with how much that industry is growing. This helps one develop a more holistic perspective on the impact of fraud on these industries, along with an idea of where the fraudsters may be focusing in the future.”
One standout trend is the remarkable growth in global digital transactions within the gaming industry, which includes online sports betting and poker. It recorded an impressive YoY increase in total transactions of 85.3%. In transactions originating from the U.S., gaming saw the highest suspected digital fraud attempt rate in H1 2023, standing at 10.2%. However, the number of digital transactions from the U.S. within the gaming industry declined by 18.5% when comparing H1 2022 to H1 2023. While insurance witnessed a significant 61.2% YoY increase in U.S. digital transactions, the suspected digital fraud rate remained relatively low, at less than one percent.
Impact of Data Breaches on Synthetic Identities
The analysis also investigates the volume and severity of data breaches during the first half of 2023, comparing them to previous years. Primary breaches increased by 5% during this period, whereas third-party breaches, involving attacks on a business network through third-party vendors or suppliers, declined YoY in H1 2023. Notably, Social Security Numbers have overtaken dates of birth as the second most frequently exposed individual credential in breaches in H1 2023.
These numbers were exposed in 69% of breaches, up from 60% in the previous year. Driver’s licenses or other state identification information also experienced a notable increase in exposure, doubling year-over-year. Checking or savings account numbers witnessed a two-fold increase in their exposure compared to the previous year.
TransUnion’s conclusions draw heavily from insights provided by its identity and fraud product suite, TransUnion TruValidate, designed to enhance trust across various channels while ensuring efficient consumer experiences. The suspected digital fraud rates reflect interactions in which TransUnion customers were either denied in real time due to fraudulent indicators or were later determined to be fraudulent following a manual review process.
This report underscores the growing importance of robust cybersecurity measures and vigilance in the face of increasingly sophisticated identity fraud schemes. In a digital age, protecting personal and financial information is paramount, both for individuals and the institutions that serve them.