Synthetic Identity Fraud – Why Traditional Biometrics May No Longer Be Enough

Fraud continues to be a major Achilles heel in the online financial services space. In fact, during 2025, fraudulent identity verification attempts in this sector exceeded 5.5 percent of all tries, representing a significant increase from 2024’s figures. More specifically, roughly one-third of fintechs report that they have recently experienced fraud. 

Compared to other types of fraud, research shows the growth rate for traditional document fraud presentation – i.e., when a document’s data has been physically altered or a counterfeit document has been fabricated from scratch – has been relatively stagnant the last few years. 

Some fraud prevention professionals may view this as a positive sign that fraudsters are realizing that online identity verification systems have become “too good” at discerning and rejecting fake and altered IDs, and have moved onto more sophisticated tactics.

However, now is definitely not the time to lower your guard or be lulled into a false sense of security that document fraud is a lesser concern. We expect that synthetic identity fraud will drive the next big evolution and uptick in document fraud.

Synthetic Identity Fraud Brings a Focus Back to Documents

Synthetic identity fraud occurs when fraudsters blend real and fake data to create documentation that’s ‘good enough’ to fool most online Know-Your-Customer (KYC) checks. In fact, an estimated 95 percent of financial institutions‘ synthetic identity threats are not detected during the onboarding process. 

Easy access to AI tools for face-swapping (a form of deepfakes) and fake document creation (using ID templates widely available on the dark web) is making synthetic identity fraud easier than ever.  Today, a fraudster can simply take a picture of someone else’s ID, upload it to their computer, swap in the fraudster’s own face, print it onto a PVC card, present it and voila! A new account can be created; a loan taken out or a credit line maxed – while the fraudster just disappears (a process known as “busting out”). 

Unfortunately, synthetic identity fraud is currently costing banks and fintechs billions, and it’s likely only going to get worse, given that it’s easy to execute in bulk and scale across multiple platforms simultaneously. According to the Deloitte Center for Financial Services, synthetic identity fraud remains one of the fastest-growing financial crimes, with estimated losses expected to generate at least $23 billion annually in the U.S. alone by 2030. 

Online Identity Verification in a Pre- and Post- AI World

In the days before AI, all a fintech needed to do to verify identity was ensure the face on a document matched the face of a presenter. But today, AI-enabled trickery like synthetic identity fraud means that traditional biometric face matching is no longer enough to authenticate an individual. Face matching only proves consistency, not authenticity. 

The world of synthetic identity fraud requires a renewed focus on document verification as part of a comprehensive, multi-layered approach – verifying document legitimacy; biometric checking (i.e., face matching to ensure the face on the document matches the face of the individual presenting); analyzing behavioral biometrics (such as keystroke dynamics and device movements); and assessing technical signals like device and network fingerprinting. Integrating these continuous, non-intrusive authentication methods significantly strengthens fraud detection, as they reveal anomalies that static checks often miss. 

For fintechs, the benefits of such an approach are many, including:

• Reducing Fraud Loss: Across industries, approximately one in twelve newly created accounts is estimated to be fraudulent. Stopping synthetic identities and corresponding bogus IDs at the point of entry enables fintechs to cut off fraud-related losses at the pass. Fintechs looking to expand globally will need document verification capabilities that deliver superior accuracy across a wide variety of document specimens (driver’s licenses, passports, and more) and key countries and geographies.
• Solving the “Friction Versus Security” Paradox: Slow, inconvenient online onboarding processes have long plagued financial services firms, with one study showing user abandonment rates as high as 50 percent if digital account opening time exceeds three to five minutes. New approaches are both extremely fast and reliable, helping maximize conversions.  
• Operational Efficiency: Near-perfect levels of accuracy and automation allow fintechs to scale globally without a corresponding increase in manual review costs or headcount. Moreover, maintaining “human-in-the-loop” capabilities allows human oversight for highly atypical specimens, ensuring a balance between optimum security and a stellar user experience for the masses.
• Regulatory Compliance: Fintechs can also benefit from cross-industry recognition of fraudulent patterns (for instance, the same synthetic profile and supporting documentation used across multiple fintechs) as well as the ability to cross-reference users against global sanction lists and government registries, helping ensure both KYC and AML compliance. 

Consumers are becoming increasingly comfortable using fintech platforms to manage their finances. While 87 percent of consumers report they are comfortable using national banks, 79 percent now say they are comfortable using fintech companies, narrowing the trust gap. 

This means the market opportunity for fintechs is huge, but as many potential bank partners continue to be risk-averse and as user expectations heighten, fintechs must ensure their platforms are secure and trustworthy. Given the rise of AI, synthetic identity fraud detection – including an upleveled ability to detect fake and altered documents – is taking on a new level of urgency.

A quote from the author: “Synthetic identity fraud is hitting so many industries hard – not just fintech and online financial services, but retail and e-commerce, automotive lending, property lending, government/public benefits and more. Currently, 44 percent of organizations across industries overall rank synthetic identity fraud as the top-tracked fraud type. And it’s placing a renewed emphasis on ensuring document legitimacy.”

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