This article is sponsored by Lexis Nexis.
Across the world, growing numbers of young people, new-to-country immigrants, and other groups are poised to enter the financial system as customers of credit, loans, remittances, and more. By 2030, 75% of consumers in emerging markets will be between the ages of 15 and 34.
Companies that can safely onboard and serve this population of emerging identities can unlock significant growth potential and improve financial inclusion. But for the banking and payments systems of the world, emerging identities often complicate traditional approaches to recognizing trusted customers.
- Younger demographics haven’t had as much time to build up a record of working, borrowing and purchasing.
- New-to-country immigrants might not have acquired financial products or proof of residence outside of their birth countries.
- Older consumers that live communally and don’t have a driver’s license may seem risky.
Identity verification needs to keep pace with all of these changes, and more.
Emerging Identities Provide Superb Camouflage For Synthetic IDs
From the business world’s perspective, emerging identities can seem to appear out of nowhere, often with robust digital profiles but fewer physical identifiers. Unfortunately, these profiles also strongly resemble third-party synthetic identities, cobbled together by fraudsters from real, modified, and fake bits of identity information.
Since first materializing in the US more than 10 years ago, synthetic identities have spread to other major financial economies. Recent analysis found three million high-risk synthetic identities in circulation in the UK alone, with the volume increasing at a rate of over 500% between 2020 and 2023.
With global losses from synthetic identities estimated at up to $40 billion, businesses must be cautious of this rising threat as they attempt to find ways to onboard emerging identities.
It’s bad business to reject low-risk emerging identities. Even flagging them for manual review increases operational costs and degrades the applicant’s onboarding experience, starting the new relationship with an unproductive atmosphere of mistrust.
How Synthetic Identities Cloud The Search For Emerging Identities
There are two types of synthetic identities, broadly speaking. First-party synthetics are alternate identities that consumers create for themselves, for a specific purpose—and not always with malicious intent. However, these identities often collide with the real identity they are augmenting, and do not pass validity checks.
Third-party synthetics are more malicious in nature. These are sometimes referred to as “Frankenstein” identities because a third party cobbles together pieces of identities from legitimate and fictitious sources into one imaginary digital identity they can leverage for cybercrime. These are managed via disposable email addresses and phone numbers, to help maintain anonymity.
Credit bureaus have become an unexpected, but reliable ‘source’ of synthetic identities. It’s hard for criminals to fabricate an identity through credentialed sources like voter registration, a property deed, or a professional certification. On the other hand, it’s relatively easy to submit multiple credit applications to stimulate the creation of a credit profile.
How To Tell Synthetic Identities From Emerging Identities
Though synthetic identities can appear very similar to emerging identities, smart analysis backed by robust intelligence can reveal telltale patterns of synthetic fraud. For example, synthetic identities are 7x more likely than emerging identities to have no first-degree relatives, 20x more likely to appear in multiple credit applications in a short time period and 7x more likely to first show up at a credit bureau at an unusually late age.
Businesses Are Finding New Ways To Safely Onboard Emerging Identities
Competing more effectively in the emerging consumer market starts with an accelerated customer acquisition process that speeds approvals for legitimate customers while mitigating fraud threats. Balancing faster approvals with increased confidence demands identity verification that accurately assesses applicant identity and behavior patterns in real time.
Because emerging identities appear without historic data, businesses need more diverse sources of context around risk.
- Seek out alternative data sources. For example, education sources can help to verify younger demographics.
- Clarify a bigger picture. Robust collaborative intelligence networks help to set an identity’s desired action in the broader context of their past and real-time interactions with other organizations, in different industries and even across borders.
- Authenticate documents with liveness checks. More advanced solutions can verify and authenticate valid documentation without much disruption to the user experience.
- Layer insights for a more comprehensive view of identity. How is the user behaving? Are they mobile? Are they submitting many applications in a short period of time? Does the email, device or location carry risk signals? The sum of these insights clarifies risk more than any one contributing factor.
Both customers and businesses win when emerging identities can be verified reliably and distinguished from synthetic identities. More legitimate consumers access the financial services they want. Businesses acquire more customers safely while reducing costs and better focusing manual fraud risk assessments.
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