Thread by @dbkahn

Catching up on Sunday #longreads but swapping articles for podcasts. Today's highlight was @omnivorousread's interview of @naftaliharris talking about synthetic fraud podcasts.apple.com/us/podcast/a16…

@omnivorousread @naftaliharris While the industry calls it synthetic identity fraud, at the end of the day it is really just a long con. That con has three steps:
1. The creation phase
2. The build up phase
3. The bust out phase

@omnivorousread @naftaliharris In step one, the fraudsters target lenders that pull from all three credit bureaus so their newly created identities can seed a record at all the majors (Experian, TransUnion, Equifax)

@omnivorousread @naftaliharris The fraudsters also create fake social media accounts on FB, LI, Twitter and other places to make the synthetic identity look more real

^^ finstas for fraudsters! 😂

@omnivorousread @naftaliharris During step two ("the build up") the fraudsters spend anywhere from a few months to two years building and acquiring credit, including making payments (at least the minimum) to show that the profile has strong repayment history

@omnivorousread @naftaliharris Payments often come from bank accounts that have been opened in the same name (using fake name, DOB, SSN, and address in order to pass KYC checks)

@omnivorousread @naftaliharris This works because most anti-fraud efforts are focused on stopping identity theft

@omnivorousread @naftaliharris Step three ("the bust out") is every fraudster's favorite phase. At this point the synthetic identities have really solid credit scores of 750+ and are qualified to take out big credit lines with super prime lenders (across credit cards, auto, and personal lending)

@omnivorousread @naftaliharris The fraudster now has access to 10s or 100s of thousands of dollars in loans and at a certain point, a switch flips and the fraudster stops making payments. So this synthetic identity goes from looking like one of your best customers to your worst one.

@omnivorousread @naftaliharris But most systems still won't be able to differentiate between someone who lost a job and is just having trouble paying versus identity fraud. So the loan moves to an ordinary collections process.

@omnivorousread @naftaliharris This means that the fraudster has much more time to get away, since unlike in the case of identity fraud, there is no one to report the issue to the bank or lender.

@omnivorousread @naftaliharris According to @naftaliharris this type of fraud currently costs the industry $1-2B a year in the US

@omnivorousread @naftaliharris The biggest takeaway here is that these fraudsters often have a better understanding of the US credit system than many of the people who work at the big banks

@omnivorousread @naftaliharris The other sad part is that because this fraud costs real money, it mostly ends up hurting young people, immigrants, and other folks who have limited experience with credit

@omnivorousread @naftaliharris If you're interested in more reading, check out a16z.com/2019/01/18/not… from Joel de la Garza, who was the other person on the podcast (but not on Twitter)

@omnivorousread @naftaliharris Thanks to @smc90 for the link and for building/growing the a16z podcast!