In the fast-moving world of digital finance, identity is currency. And just like currency, it’s now being forged — not in shady alleys, but through highly sophisticated methods involving AI, deepfakes, and data breaches. Welcome to the world of synthetic identity fraud, where the fraudster doesn’t steal your identity — they create a whole new one.
And in India, this isn’t some future problem. It’s already here.
What Exactly Is Synthetic Identity Fraud?
Unlike traditional identity theft, where someone steals your National Id like PAN and pretends to be you, synthetic identity fraud involves piecing together real and fake information to create a brand-new, seemingly legitimate person.
A fraudster might use a real national id (often belonging to a minor or someone with little credit history), combine it with a fake name, date of birth, and address — and voila, a ghost customer is born.
This synthetic identity then applies for loans, credit cards, insurance claims, or even opens bank accounts. And because there’s no real person behind it, recovery is almost impossible.
Why India Is Vulnerable Right Now
India’s fintech boom has been nothing short of revolutionary. According to the RBI, India now sees over 10 billion digital payment transactions every month.
As the rapid digitisation has increased financial access, it has also widened the attack surface for fraudsters.
- Multiple KYC journeys across wallets, BNPL apps, and credit products mean multiple opportunities for fake identities to slip through.
- The sheer volume of unverified data available through breaches and leaks makes it easier for fraudsters to build convincing fake profiles.
- AI tools are now capable of generating real-looking photos, voice clips, even video calls — fooling outdated KYC and onboarding tools.
A recent TransUnion report showed that India saw a 231% rise in suspected digital fraud attempts in financial services between 2020 and 2023 — a good chunk of that linked to synthetic IDs.
The New Face of Fraud: Sophisticated, Patient, and Scalable
Synthetic fraudsters don’t attack immediately. They’re patient. Here’s how it typically works:
- Create the synthetic ID — using a real national id, fake name, fake mobile, and email.
- Build the credit profile — apply for small loans, repay on time, open savings accounts.
- Scale up — once the system sees them as “credible,” they apply for large loans or credit cards and vanish.
And with AI tools like voice cloning and deepfake video, they can even appear for video KYCs, speak to customer support, or submit scanned documents that look 100% real.
The Weakest Link: Outdated Tech Stacks
The biggest enablers of synthetic identity fraud aren’t hackers — they’re legacy systems.
If your onboarding or verification stack relies solely on document uploads, OCR, or face matching without liveness checks or database triangulation — you’re exposed.
In many banks and NBFCs, the fraud detection process is reactive — red flags show up only after the damage is done. And when the customer doesn’t exist, there’s nothing to recover.
What a Modern Tech Stack Looks Like
Tackling synthetic identity fraud isn’t about adding more tools — it’s about building smarter, connected systems that verify identity across dimensions:
🔹 Real-Time ID Verification
Use APIs that verify PAN, Voter ID, and Driving Licence directly with issuing government databases — not just document scans.
🔹 Liveness and Deepfake Detection
Modern facial recognition systems go beyond selfies — they check for micro-movements, lighting consistency, and spoofing signs.
🔹 Phone + Address Signal Matching
Validate phone numbers and addresses against telecom and utility databases to confirm they belong to the claimed individual.
🔹 Employment and Income Validation
For lending journeys, layer in verification of employment history, salary deposits, and active UAN from EPFO — this is hard for synthetic IDs to fake convincingly.
🔹 Behavioural Pattern Analysis
AI-based models that detect unusual user behaviour — like typing speed, mouse movement, login timing — can flag fake personas early.
From KYC to KYT: Know Your Transactions
Synthetic identities don’t stop after onboarding. They blend in. So monitoring just the entry point isn’t enough.
Continuous transaction monitoring — especially for lending, BNPL, and credit journeys — can reveal:
- Circular transactions
- Instant repayment spikes
- Micro deposits from suspicious sources
This is where KYT (Know Your Transactions) becomes as crucial as KYC.
A Wake-Up Call for BFSI, Fintech, and RegTech Leaders
You don’t need a fraud attack to realise you’re vulnerable. The smarter approach is to proactively audit your tech stack. Ask:
- Are our ID verifications relying on static documents?
- Do we use government APIs or third-party OCR tools?
- Is our facial recognition AI trained to detect spoofs?
- Can we validate employment or income digitally?
- Are we building feedback loops between onboarding and fraud analytics teams?
Because the bad actors have already evolved. The question is — has your tech stack?
Closing Thoughts
In the next few years, synthetic identity fraud could become the biggest financial crime in India, not because we lack laws, but because our systems haven’t caught up.
While regulatory bodies like RBI and SEBI are pushing for stronger KYC norms, the onus is on companies to act faster than fraudsters.
And that starts with an honest assessment of your current tech — before the next ghost customer makes it through the front door.
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