Subscription fraud creates over $7 Billion in losses every year for the communications industry, according to the Communications Fraud Control Association. It is one of the fastest growing types of telecom fraud, but it often begins rather simply - by someone signing up for a new account. While this may be how subscription fraud begins, there are many different ‘flavors’ of this type of fraud that are being perpetrated – depending upon the capabilities, resources and goals of the fraudster.
Types of Subscription Fraud:
First party fraud is the simplest and most straight-forward off the three subscription fraud types. An example of first party fraud is when someone uses their own legitimate identity and information to sign up for service, with no intention of ever paying for it. This can involve prepaid or postpaid services, but most often occurs with postpaid services where the new user signs up for a new contract which often includes an expensive phone that is subsidized by the carrier. The subscriber then uses the service for free for a month or two and keeps the new phone – while never paying their bill. First party fraud often quickly catches up with the fraudster because they use their own identity. The carrier cuts off service and won’t allow them to sign up again until their debts are paid.
Third party fraud is when a fraudster uses someone else’s real information to open a new account. In effect, an identity of a real person is stolen by the fraudster who is masquerading as them. It often involves the use of their actual home address, social security number, name, birth date and other personal information, which is used to create the account. Once established, the fraudster uses the account without paying for services. This can continue for several months or even longer, until the person whose identity was stolen realizes what has happened and notifies the carrier or other authorities.
Lastly is Synthetic Fraud, of which there are two types – manipulated and manufactured.
Manipulated synthetic fraud is when someone uses their own identity to open an account but manipulates other data and information in a fraudulent way, such as their social security number and other personally identifiable information. Often these are consumers with poor credit scores who know they typically wouldn’t be able to open a new account, yet still want to access services. While not done with malicious intent, these folks can still pose a risk to carriers who don’t know the real credit risk of the applicant.
Manufactured synthetic fraud is the most complex and insidious type of subscription fraud- and according to the U.S. Federal Trade Commission it is the one that is growing the fastest and is the hardest to detect. This involves the complex scheme of creating an entirely fake identity of a person that doesn’t exist. Organized crime rings are often behind this type of fraud, and it can extend well beyond the telecom provider. Opening a new wireless account would just be one of many steps in creating these identities. From there, fraudsters may patiently “nurture” a credit file for many years, creating the back story of their fake personas by opening many fictitious accounts and even fake social media pages. During this time criminals often practice good personal finance, paying their bills on time and diligently building excellent ‘fake’ credit scores. After all, a higher credit rating lets them do more damage down the road, when the fraudsters finally decide to strike by taking out huge loans under these fake identities- without any intention to repay them. An article in The Wall Street Journal showed how a single person created 300 fake ‘accomplices’ to steal over $350,000 before he was caught by federal agents.
According to a report by the U.S. Federal Reserve, 85-95% of applicants identified as potential synthetic identities are not flagged by traditional fraud models, which often lack the sophisticated analytics capabilities needed for detection. If carriers can detect this fraud early on, it will not only reduce losses for them, it will also stop much larger corruption down the road.
To learn more about subscription fraud, digital identity and the end-to-end risk management tools that can help combat abuse, view our subscription fraud management solutions.