Synthetic Identity Fraud In The Age Of GenAI: Are Traditional KYC Tools Still Fit For Purpose?

Forbes

3 days ago

Luke Boddis, Senior Director - Global Business Development, Checkout.com.
In recent years, synthetic identity fraud has quietly become one of the fastest-growing forms of financial crime. Now, with the explosion of AI, the threat is accelerating at an alarming pace. Fraudsters no longer need stolen identities to commit large-scale fraud. Instead, they can generate entirely fake but highly convincing personas using AI-powered tools. This evolution presents a serious question for all businesses: Are traditional Know Your Customer (KYC) tools still fit for purpose?
As someone working at the intersection of identity, fraud prevention and customer experience, I've seen firsthand how rapidly emerging technologies, particularly the use of AI, are reshaping the digital risk landscape. In my current role, helping global platforms modernize their onboarding and authentication journeys, I'm constantly engaged with businesses trying to stay one step ahead of increasingly sophisticated fraud. That's why synthetic identity fraud, and its growing impact on traditional KYC processes, is a topic I'm especially passionate about.
The Rise Of Synthetic Identities
Synthetic identity fraud is essentially creating a fake identity using a combination of both real and fictitious information. Fraudsters often use legitimate data points, like a real social security number or phone number, and blend them with false details such as fabricated names or photos. These identities can pass basic checks and are used to open accounts, build credit profiles and ultimately extract value from financial systems.
In the pre-GenAI era, crafting believable identities at scale was time-consuming and technically difficult. Today, with free and widely available AI tools, a single individual can generate thousands of fake profiles with:
• AI-generated faces that appear photorealistic
• Deepfake videos to mimic liveness and fool facial recognition systems
• Fabricated documents that bypass optical character recognition (OCR) tools
• Language models to respond to verification questions convincingly
The speed and accessibility of AI are nothing short of remarkable. But as impressive as these advancements are, they also pose serious risks, particularly for businesses facing a growing wave of identity-based fraud.
Why Traditional KYC Falls Short
Many KYC systems were built for a different era. Their reliance on static photo uploads, basic document matching and form-based data collection leaves them vulnerable to increasingly advanced synthetic techniques. Key limitations include:
• Static Image Verification: These can be easily manipulated using tools like Photoshop or AI-powered face generators.
• Document-Based Checks: Many forged documents now bypass automated verification tools with near-perfect replicas.
• Lack Of Real-Time Liveness Detection: Without biometric verification, it's difficult to confirm the user is real and present.
• Over-Reliance On Credit Bureaus: Fraudulent identities can build synthetic credit profiles over time, creating false legitimacy.
In the GenAI era, these traditional tools provide a false sense of security while fraudsters exploit their blind spots.
Modernizing KYC With AI And Biometrics
To stay ahead, businesses must shift from passive to active verification methods. This includes embracing technologies that verify identity in real time, test for biometric liveness and detect synthetic fraud. Key strategies include:
• Live Video Verification: Captures real-time movements to confirm a human is present and actively participating in the verification.
• Biometric Liveness Detection: Uses AI to detect facial movements, eye blinking and 3D depth to confirm authenticity.
• Face Authentication: Allows users to reverify or log in using a trusted biometric template, removing the need for passwords or one-time passwords (OTPs).
• AI-Powered Risk Intelligence: Analyzes behavioral signals, device fingerprinting and anomaly detection to spot fake accounts.
A Regulatory Imperative
Globally, regulators are waking up to the threat of synthetic identity fraud. In the U.S., the Federal Reserve has highlighted synthetic identities as the fastest-growing type of financial crime. Meanwhile, the EU's AI Act and the U.K.'s Online Safety Act are pushing platforms to implement stronger age verification and identity assurance measures.
Traditional KYC providers who rely on outdated, document-first workflows may soon find themselves out of step with these evolving standards.
Time To Rebuild Trust
Synthetic identity fraud powered by GenAI is not a future threat; it's happening now. As fraudsters evolve, so too must our tools. Relying on outdated methods is not only ineffective but increasingly dangerous.
Businesses must act now to integrate real-time, AI-driven identity verification into their workflows. It's the only way to build trust at scale in an era where what you see is no longer what you get. And with consumer expectations rising, the platforms that lead in trust and safety will be the ones that win.
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