Synthetic identity fraud is one of the fastest-growing threats in payment processing today. Unlike traditional fraud, which involves stolen credentials, synthetic fraud is created from a combination of real and fabricated information to build entirely new identities. These identities are often used to open accounts, apply for services, or make purchases that result in chargebacks and losses for merchants. If your business relies on a card processing merchant account or uses credit card processing providers, synthetic identity fraud could undermine your revenue and processor relationship[1]. Recognizing the signs early—and taking action—is essential to protecting your business from mounting disputes, lost inventory, and compliance risks.
What Is Synthetic Identity Fraud and Why It’s Hard to Detect
Synthetic identity fraud occurs when fraudsters blend real data (like a valid Social Security number) with false names, emails, or addresses to create a new, “believable” identity. Unlike identity theft, where someone impersonates a real individual, synthetic fraud builds an entirely fictitious user that can pass basic verification. These identities often bypass security filters, get approved for transactions, and leave merchants vulnerable[2]. Because they don’t match stolen card red flags, they’re harder to detect with traditional fraud tools. This makes them particularly dangerous for businesses operating in regulated markets or using credit card processing providers that don’t offer advanced verification.
How Synthetic Identities Impact Merchant Accounts
For merchants, synthetic fraud often results in chargebacks, inventory loss, and strained relationships with payment processors. Businesses using a card processing merchant account may not even realize they’ve been targeted until weeks later—when chargebacks pile up or a shipping address is flagged as fraudulent. Because the identities are not linked to real people who can be contacted or verified, dispute resolution becomes nearly impossible. Merchants in verticals like CBD, where trust and compliance are already under pressure, are even more vulnerable[3]. This is especially critical if you’re wondering, do I need a license to dropship CBD in Georgia?—as compliance and payment legitimacy are closely tied.
Mismatched Identity Data
Fraudulent accounts often use names that don’t match the billing address or phone number area code. Cross-checking this data during checkout can reveal suspicious patterns.
Use of Prepaid Cards or Unverified Wallets
Synthetic identities frequently rely on prepaid cards or wallets like Venmo, which may explain recurring issues like why is my payment declined on Venmo—a sign of attempted fraud or identity conflict.
High-Value Purchases Without History
Accounts that suddenly place large orders after long inactivity or minimal engagement are common red flags. Legitimate customers tend to build trust gradually.
Multiple Orders to the Same Address with Different Names
A high frequency of orders going to a single location under different names is a strong sign of fraud rings testing stolen identities or synthetic profiles.
Why Your Payment Processor Plays a Key Role
Some credit card processing providers are better equipped to detect and prevent synthetic fraud than others. Advanced providers offer device fingerprinting, velocity filters, and 3D Secure tools that flag unusual behavior before a transaction clears. These tools can help you define suspicious behavior more accurately and stop fraudulent orders in real time. If you’re using a card processing merchant account without these features, you may not find out about fraud until it’s too late to act[4]. Choose providers who specialize in high-risk verticals and offer tools tailored to your business model and risk profile.
How to Train Your Team to Spot Suspicious Orders
Your customer service, fulfillment, and fraud teams should be trained to look for signs of synthetic fraud. If an order seems too good to be true—such as a new customer buying high-ticket items and requesting overnight delivery—it probably is. Empower your staff to flag and escalate transactions that deviate from typical customer behavior. Use a shared database to log suspicious activity and analyze it over time. This collaborative approach strengthens your internal fraud defense and supports chargeback disputes by showing due diligence.
How to Strengthen Your Verification Process
To stop synthetic fraud, your checkout and account setup processes must include more than just basic form fields. Add verification steps like phone number confirmation, email validation, and address checks. Leverage tools that analyze identity risk based on digital behavior, not just name and ZIP code. And always define customer profiles using a multi-layered approach—what some processors refer to internally as a “define MOTO” strategy, where Mail Order / Telephone Order profiles are evaluated with stricter fraud rules. Even ecommerce businesses benefit from this layered scrutiny when onboarding new users.
What to Do When You Suspect Synthetic Identity Use
Flag the Transaction Internally for Review
Mark the order for review and hold shipment until the identity can be verified. Delaying fulfillment is better than risking a confirmed fraud loss.
Contact the Customer with Verification Questions
Ask for additional information like a billing ZIP match or confirmation email response. Fraudsters often fail to complete follow-up interactions.
Cross-Reference with Known Fraud Patterns
If the order matches others flagged in the past—same email domain, shipping address, or item bundle—consider it high risk.
Use 3D Secure to Shift Liability
For online orders, enabling 3D Secure authentication helps shift chargeback liability to the issuing bank, giving you protection in case of disputes.
Preventing Synthetic Fraud in Subscription Models
Subscription businesses are frequent targets of synthetic identities. Fraudsters create accounts, access free trials, and cancel before billing starts—or worse, run up charges before the identity is flagged. Use card verification tools at signup, implement dunning workflows for failed payments, and track IP and device consistency over time[5]. Preventing synthetic fraud is not just about stopping the first transaction—it’s about protecting every future one linked to that account.
Conclusion
Synthetic identity fraud is a silent threat that can erode your revenue and reputation before you even realize it’s happening. For merchants operating online—especially those managing card processing merchant accounts or selling high-risk goods—it’s critical to implement proactive defenses. By leveraging advanced tools from your credit card processing provider, analyzing data for suspicious patterns, and training your team to act on red flags, you can stop synthetic fraud before it costs your business. At Payment Nerds, we help high-risk merchants define and defend their fraud prevention strategies—from onboarding to dispute resolution—so you can process payments with confidence.
Sources
- Federal Reserve. “Synthetic Identity Fraud and the Payments Ecosystem.” Accessed April 2025.
- U.S. Department of Justice. “Synthetic ID Fraud: A Growing Threat.” Accessed April 2025.
- PCI Council. “Identity Risk in Card-Not-Present Transactions.” Accessed April 2025.
- National Cybersecurity Alliance. “Best Practices for Digital Identity Verification.” Accessed April 2025.
- Cybersecurity & Infrastructure Security Agency. “Protecting Against Identity Manipulation.” Accessed April 2025.
