The slowdown also stemmed from financial institutions' growing use of solutions designed to thwart synthetic fraud, as well as the fact that fraudsters shifted their focus in 2020, taking advantage of new opportunities such as the Paycheck Protection Program to exploit consumers, according to Cookman.

Once forbearance programs reach their end, however, desperation to pay bills will increase among consumers, leading to a likely uptick in synthetic fraud. Aite Group estimated that synthetic fraud losses for unsecured U.S. credit products such as auto, credit card, retail credit card and personal loans will grow from a total of $1.8 billion in 2020 to $2.43 billion in 2023.

"We believe this slowdown [in synthetic fraud] was compounded by fraudsters who went elsewhere and could be lying in wait to take advantage of pandemic loan forbearance programs that may not have come due yet," Shai Cohen, SVP of Global Fraud Solutions at TransUnion, said. "Once synthetic fraud reemerges, which we think it will, companies must be ready."

Synthetic fraud is particularly concerning for credit unions and other financial institutions because it's difficult to detect, Aite Group Research Director Julie Conroy pointed out. Many synthetic identities resemble identities of people without a credit history or who are new to the country, and in many cases synthetic fraudsters "play the long game," building up credit profiles and nurturing fake identities over periods of up to five years before maxing out their credit and vanishing. And out of 46 North American fraud executives Aite Group surveyed in September 2020 for its recent report, "Synthetic Identity Fraud: Diabolical Charge-Offs on the Rise," 72% said they believe synthetic identities are much more challenging to identify and address than identity theft.

"It's hard for financial institutions to get their hands around it," Conroy said. "There are some opportunistic fraudsters who are brought to it by desperate measure, but there's also a very sophisticated organized crime component, so they're having to fight the battle on multiple fronts."

Conroy noted that as a best practice, financial institutions should strive to stop synthetic fraud "at the front door" by identifying patterns that are indicative of synthetic fraud during the onboarding of new customers or members. While some institutions may not have the technology framework in place to detect synthetic fraud, the good news is that many vendors are offering "one stop shop," multi-pronged solutions that are necessary to help institutions identify potential synthetic fraud, she noted.

The Aite Group report also recommended institutions segment their remediation approach for synthetic fraud once it's detected, since synthetic fraudsters are often able to bypass traditional, stepped-up authentication processes. In addition, since many synthetic identities are written off as credit losses, Aite Group suggested institutions analyze their existing credit write-offs for potential synthetic fraud.