Everything you need to know about Identity Farming

In the shadows of digital economies, a silent industry thrives—one built not on stolen credentials, but on identities carefully cultivated from scratch. It’s a long game where fraudsters exploit gaps in identity systems, turning fabricated personas into valuable assets that fuel a range of financial crimes.

The scheme often begins at society’s margins, where registration processes are weak, and oversight is limited. Birth certificates are fabricated, sometimes through bribed officials or by exploiting loopholes in rural record-keeping systems. From these false beginnings, fraudsters nurture synthetic identities—complete with bank accounts, mobile numbers, and even credit histories. By the time these false identities are fully "mature," they function as complete digital citizens, ready to be sold, rented, or used for illicit activities.

This isn’t just a single scam—it’s an ecosystem. Fraudsters use these identities to bypass KYC checks, commit financial fraud, and facilitate money laundering. Meanwhile, businesses and governments face the costly consequences: eroded trust, regulatory penalties, and significant financial losses.

Understanding how identity farming operates is essential to recognising its impact and safeguarding your business from its reach. In this blog, we’ll break down the mechanics of identity farming, explore its devastating effects across industries, and show how tools like biometric verification and AML screening can help businesses stay protected.

What Is Identity Farming?

Identity farming is a sophisticated form of fraud where individuals or groups collect and exploit large quantities of personal information—often through illegal or unethical means—to create fake identities or manipulate existing ones. This information, which includes names, addresses, social security numbers, and financial details, is often harvested through:

• Phishing and Social Engineering Scams: Fraudsters deceive individuals into sharing sensitive information.
• Data Breaches: Leaked databases provide a treasure trove of personal details.
• Malware and Ransomware: These tools infiltrate systems to steal data.
• Dark Web Purchases: Fraudsters buy ready-to-use stolen identity packages.

Identity farming is the foundation of many modern fraud schemes, enabling bad actors to bypass stringent identity verification systems and carry out criminal activities with anonymity.

How Does Identity Farming Work?

Identity farming often involves blending legitimate details with fabricated ones to create synthetic identities. Fraudsters might combine a real name and address with a falsified phone number and email to craft an identity that appears genuine. This allows them to:

• Create Fake Accounts: Open fraudulent accounts across financial services, e-commerce, and ride-sharing platforms.
• Commit Account Takeover Fraud: Access existing accounts by tricking systems or users.
• Enable Money Laundering: Use farmed identities to funnel illicit funds across jurisdictions.

The process exploits gaps in identity verification, particularly in regions with less robust digital infrastructure. Once identities are farmed, fraudsters leverage them across industries for maximum financial gain.

Use Cases: How Identity Farming Impacts Industries

Buy Now, Pay Later (BNPL)

In the BNPL sector, fraudsters use farmed identities to create multiple accounts, build trust by repaying small purchases, and later default on significant high-ticket transactions. This leaves businesses absorbing the losses.

Fintech

Fraudsters exploit fintech platforms by taking advantage of onboarding incentives, referral bonuses, and promo campaigns. These schemes can inflate customer metrics and cause substantial financial damage.

Ride-Sharing

Identity farming enables fraudsters to exploit ride-sharing apps by creating fake driver and rider accounts. Fraudulent drivers can complete fake trips, boosting earnings and ratings, while riders exploit promo codes and referral bonuses.

Lending

In lending, fraudsters create synthetic identities to secure loans. They build creditworthiness with small loans and eventually vanish with significant sums, leaving lenders at a loss.

Cryptocurrency

Crypto platforms are attractive targets due to anonymity. Farmed identities are used to create accounts, launder money, and evade regulatory oversight.

The Negative Impact of Identity Farming

1. Financial Loss: Fraudulent activities drain revenue, particularly for industries reliant on trust, such as fintech and banking.
2. Reputational Damage: Businesses that fall victim to identity-related fraud face a loss of customer trust and goodwill.
3. Regulatory Risks: Non-compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements can lead to fines and sanctions.
4. Inflated Metrics: Phantom users created through identity farming skew business performance data, misleading stakeholders and disrupting strategic decisions.

Dipo Omogbenigun, Smile ID's Sales Director for Enterprise, highlighted the dangers of identity farming:

"We've consistently observed a troubling trend where stolen funds are fraudulently transferred from compromised bank accounts to fintech platforms, only to be withdrawn via POS terminals or converted into cryptocurrency. Many cases follow this pattern, with funds funnelled through fintech accounts and accessed via POS withdrawals. Often, POS agents or fintech account holders are unaware that their credentials are being exploited for fraudulent purposes."


 

Identity Farming, Insider-Assisted ATO, and Layered Money Laundering

Insider-Assisted ATO (Account Takeover): A type of fraud where an employee or insider provides access or manipulates systems to help fraudsters take over legitimate accounts, bypassing security measures like multi-factor authentication.

Layered Money Laundering: A money-laundering phase where illicit funds are moved through multiple transactions and accounts to obscure their origin, making them harder to trace.

When combined, identity farming and insider-assisted ATO form a powerful tool for layered money laundering. In 2024, insider-assisted ATOs surged in West Africa, with Nigerian banks terminating multiple employees involved in fraud schemes causing billions in losses. These breaches leveraged compromised insider access, bypassing traditional security controls and causing severe financial and reputational damage.

Fraudsters use fintech platforms to obscure the origins of stolen funds through layering—transferring money through multiple accounts, converting funds into crypto, or withdrawing via POS agents, making detection difficult.

How to Protect Your Business

Protecting against identity farming requires a robust strategy that includes biometric authentication and thorough AML checks:

Biometric Authentication

Smile ID's solutions use advanced biometric verification to ensure that only legitimate users can access accounts. For instance:

• High-risk activities like password resets or large transactions trigger biometric checks.
• This process makes it nearly impossible for fraudsters to proceed using farmed identities.

Comprehensive AML Checks

Smile ID offers a cutting-edge AML solution to screen individuals against global watchlists, sanctions databases, and adverse media sources. Businesses gain:

• Swift and Accurate Screening: Results in seconds.
• Enhanced Risk Detection: Identify flagged users during onboarding or transactions.

Smile ID's solutions have helped businesses across Africa strengthen compliance, reduce fraud risks, and protect their bottom line.

See our AML Check Solution in Action 👇

Wrapping Up

As identity farming evolves, it doesn’t operate in isolation. It’s often intertwined with more sophisticated fraud tactics such as account takeover schemes, layering techniques, and synthetic identity fraud—creating multi-layered threats for businesses. We delve into these interconnections, offering actionable insights and in-depth data, in our recently released Fraud in Africa Report.

To stay ahead of these evolving threats, businesses must invest in tools that provide robust identity verification and regulatory compliance. Smile ID's AML and biometric authentication solutions are tailored to meet these challenges, ensuring your business remains secure while offering seamless customer experiences.

Want to understand these emerging fraud tactics better and learn how to protect your operations? Download the Fraud in Africa Report now.