By the time you finish reading this paragraph, a new synthetic identity may have just been created and approved by a financial institution somewhere in the world. Powered by generative AI, identity fraud is no longer a slow-moving threat. It’s fast, scalable, and dangerously convincing.
Fraud losses reported by consumers and companies in 2024 topped $12.5 billion, a 25% increase over 2023, according to KPMG.
Much of this surge is driven by deepfakes and AI-generated documents that can mimic real people with alarming accuracy. Criminals can now create entirely fake personas within minutes complete with doctored IDs, AI selfies and scripted responses designed to pass live authentication checks.
And consumers are taking notice. Over three-quarters (78%) of U.S. adults are worried about deepfakes in financial fraud, according to a recent survey by IDScan.net. Yet fewer than half feel confident that today’s ID verification systems can stop them.
This technological shift is exposing faults in traditional KYC (Know Your Customer) and AML (Anti-Money Laundering) practices. Static document checks and outdated onboarding protocols are no match for AI systems that can simulate blinking or facial expressions on demand. If fraud is evolving, the tools to stop it must evolve too.
Fortunately, leading financial institutions are responding by investing in real-time verification, biometric authentication, and AI-driven fraud detection technologies that not only stop synthetic identities at the gate but also improve customer experience in the process.
The $6 billion threat banks can’t ignore
Synthetic identity fraud is one of the fastest-growing financial crimes globally, and according to KPMG, it costs banks a staggering $1 billion dollars per year. Unlike traditional identity theft, which relies on stealing real credentials, synthetic fraud involves the creation of new identities by combining real and fake information. These identities can go undetected for months, even years.
Generative AI has made this kind of fraud easier, faster, and far more realistic. Tools that would have originally required deep technical expertise are now widely accessible and can produce extremely realistic documentation capable of bypassing any legacy verification system.
As the tactics become more sophisticated, many financial institutions struggle to keep up. Traditional methods such as static ID checks, manual reviews and reliance on long-standing customer relationships are no longer enough. These systems were not built to contend with the power of generative AI-powered fraud.
Tackling this issue is a balancing act for the finance sector, as customers expect both security and seamless service. An abrupt and disruptive approach to fraud prevention can lead to friction, delays, and less trust, especially among loyal, long-term account holders. This makes it crucial for financial institutions to remodel their fraud prevention frameworks in ways that are not only effective but minimally disruptive to their customers.
From checkpoints to defenses
Banks are evolving their compliance strategies to fight increasingly sophisticated AI-powered fraud by embedding advanced identity verification tools into their digital onboarding and transaction processes. Technologies like facial recognition, liveness detection, and biometric matching are becoming imperative to fraud prevention efforts.
These tools can tell apart real users from deepfakes by analyzing ever-so-subtle changes such as facial movement or even blinking patterns. Financial institutions are also turning to AI-driven anomaly detection to identify suspicious behavior in real time, flagging inconsistencies that traditional systems might miss.
The fraud fight will take unification. For instance, a leading financial institution and its core support partner engage technology vendors to ensure the network of banks integrate real-time identity validation into their platforms. This includes automated document checks, biometric selfie matching, and watchlist screenings, all designed to stop synthetic identities before they gain access to the system.
These changes signal a broader recognition within the financial sector. That is, compliance tools must now work as both regulatory safeguards and front-line defenses in the constant battle against AI fraud.
Smarter compliance, stronger fraud defense
If banks and financial institutions fully embrace tools like facial recognition, liveness detection, biometric matching and real-time anomaly detection, they’ll be able to spot fraud not just faster, but more accurately. In fact, according to a recent Feedzai survey, 90% of fraud professionals say their institutions are already using AI to speed up investigations and catch emerging threats in real time. By weaving these technologies into their compliance processes, banks can turn KYC and AML from box-checking exercises into powerful defenses. That means, ultimately, fraud gets stopped earlier, synthetic identities don’t slip through the cracks, and loyal customers get the seamless experience they expect.
In the AI era, staying ahead of fraud means being faster, smarter, and always ready for what’s next. The institutions that invest now in modernized identity verification and fraud prevention aren’t just protecting their bottom line; they’re safeguarding trust, preserving reputation, and building a more resilient future for financial services.
Jimmy Roussel is CEO at IDScan.net.
