The Invisible Threat: Understanding and Combating Synthetic Identity Fraud

Highlights:

• Synthetic identity fraud is a “long con” where fraudsters build a fake identity over many months for a high-value “bust-out” event.
• These identities can be difficult to distinguish from new-to-credit and new-to-Canada customers, making them hard to detect. One red flag is a lack of a digital footprint — the non-financial history generated from sources like utility accounts and e-commerce activity.
• Organizations require a layered defense. This includes a robust Know Your Customer (KYC) process and proactive data sharing through consortiums like FraudIQ™ Exchange.

According to Equifax Canada fraud trends data, synthetic identity fraud doubled as a proportion of all fraudulent applications between 2022 and 2024, posing an invisible threat to Canadian lenders.

To understand this growing challenge, we sat down with Chris Jepsen, Senior Product Manager at Equifax Canada. With deep expertise in identity verification, Chris explains why traditional red flags are failing — and how lenders can detect these sophisticated schemes before a “bust-out” occurs.

What Is a Synthetic Identity?

Chris Jepsen: A synthetic identity is an identity — a “person” — that doesn’t exist. Fraudsters might create a synthetic identity out of a combination of real and fake elements, such as a real person’s name coupled with an illegitimate Social Insurance Number (SIN) constructed to pass cursory checks. They create these identities to take out credit against a fake identity, with no intention of ever repaying it.

How Synthetic Identity Fraud Works: The Bust-Out Cycle

Chris Jepsen: A fraudster typically starts by applying for an entry-level credit product, like a secured or low-limit credit card, with fabricated credentials like a fake driver’s license. The card issuer queries the credit bureau, but there’s no “hit” because, of course, the identity is fake and has never been seen before. That’s not unusual; it happens every time a legitimate consumer reaches the age of majority and takes out their first phone plan or credit card. Or when someone moves to Canada from another country. To accommodate these new-to-credit customers, the issuer may provide a secured credit card, say a $500 limit backed by a $500 security deposit.

This is where the long con for the “perfect” customer begins: 

• The Build-Up: They pay off the balance every month.
• The Upgrade: Their credit providers relax restrictions, such as increasing credit limits or upgrading them to an unsecured card.
• The Credit Climb: As the credit score rises, the fraudster applies for more credit, aiming for a score over 650 or 700. That’s when they can start using the identity to obtain personal loans or auto financing with significant cash value.

Once they reach a prime credit score, that’s when the bust-out fraud occurs. The fraudster takes out the personal loans, maxes out the credit cards, secures the auto financing, and disappears with the assets. Creditors try to recover their money, but can’t because that person never existed. 

While the cycle of nurturing a synthetic identity can take up to two years, the value of the payout makes it worthwhile to financial criminals. Organized fraud rings may be managing hundreds of these synthetic identities at once, shepherding them through the process to the payout point. 

Why is Synthetic Identity Fraud So Hard to Detect?

Chris Jepsen: These identities function in a very similar way to a new-to-credit or new-to-Canada scenario. For example, when I moved from Australia to Canada and opened a mobile phone account to build my credit history, I would have looked identical to a fictitious identity applying for their first account. There are indicators to tell them apart, but they’re often buried deep in the data and can take time to surface.

Beyond Tradelines: Using Digital Footprints to Spot Synthetic Identities

Chris Jepsen: The flags are subtle, requiring analysis of hundreds of data points. One pattern we notice is that tradelines — the credit products taken, such as cell phone plans or lines of credit — are structured differently for synthetic identities. 

Fraudsters will structure their tradelines very specifically to maximize the credit score of a fake identity, whereas real consumers are applying for and using their credit to live their normal lives. There’s very different motivation behind the behaviours and, because of that, the markers look different. 

The biggest red flag, however, is often what isn’t there. A genuine consumer has a history that isn’t just financial. It exists across things like:

• Utilities and rent
• Online transactions
• Recurring payments
• Device data and digital footprint

We accumulate that sort of “digital dust” in the course of everyday life.

A synthetic identity has none of that because it’s not operating in the real world. It will just have an identity document or two, and a credit or a financial profile, but nothing else. They have no footprint across other providers. When you can pull in alternative data sources like e-commerce transaction data in addition to financial data sources, you can get a more fulsome picture of the identity.

Organizational Strategies to Mitigate Synthetic ID Fraud

Chris Jepsen: Focus first on tightening your Know Your Customer (KYC) and customer onboarding processes, to validate that a real person is on the other end of the transaction. This is also known as identity proofing. This could include adding knowledge-based authentication questions to your verification process.

Data sharing is another powerful tool at our disposal. Once you’ve flagged something that’s suspect, how do you make the information accessible to others? The FraudIQ Exchange consortium is a great example of how organizations can collectively block threats. There is also a case for ongoing monitoring, to study how that customer is behaving over time, spotting the signals that separate a genuine consumer from a fraudster.

Synthetic identity fraud is complex — but not invisible. A better understanding of the techniques used by these fraudsters coupled with the proper detection tools can help you stop these fake identities from entering your ecosystem in the first place.

Learn more about how Equifax Canada can help you better verify potential customers with our Identity Assure suite of products.

[This article is published by Equifax Canada Co.® 2026. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business advice.]