One-Time Password (OTP)

The end-user needs to follow a few simple steps to complete the OTP verification flow. 

Often, the system:

1. Requests the OTP. The user initiates an action that requires verification, such as logging in or confirming a transaction.
2. Sends the OTP. A unique code is sent to the user via SMS, email, or authenticator app.
3. Asks to enter the OTP. The user inputs the code into the verification field on the website or app.
4. Verifies the user’s identity. The system validates the OTP, completing the user verification or transaction securely.

A one-time password (OTP) is often used as part of two-factor authentication (2FA). OTP serves as the second factor, confirming device possession in addition to the user’s password. OTPs can be sent using tokens, which are based on an email, software, phone, or SMS token, allowing the user to access a web or an app without repeatedly entering their credentials.

Yes. An OTP adds an extra layer of security by generating a unique code for each login or transaction, reducing the risk of fraud, such as unauthorized transactions and account takeovers. For example, a user’s account might be compromised, and a fraudster from a suspicious location (often another country with a suspicious IP) tries to enter standard credentials (password and login, which were stolen). 

Without OTPs, if the platform doesn’t have monitoring solutions that flag suspicious activity, they leave the account unblocked, aka open a door for the fraudster to steal the account and make purchases. With OTP through SMS, for instance, they would have to have the real user’s device and phone number, which would stop them from logging in and taking over the account. Since OTPs are valid only once and expire quickly, they protect against password theft and replay attacks, making them more secure than static passwords.

OTPs work as a second layer of security during user onboarding and can help increase security without compromising user experience. Since this verification measure is widely popular, most users are familiar with entering an OTP before logging in to their accounts. Due to the convenience and low-friction nature of this onboarding measure, conversions aren’t negatively affected, even if a stricter KYC workflow follows next. 

This makes OTPs an important fraud prevention solution against multi-accounting, bots, and similar threats.

Various industries implement OTPs as a security measure to improve fraud prevention and maintain a simple login or user onboarding process. 

That’s why OTP authentication is beneficial and offers:

• Familiarity. Most people already know how to use OTPs, making adoption easy.
• Efficiency. OTPs are delivered quickly, with the option to request a new code if needed.
• Variety of use cases. This measure is suitable for banking, fintechs, crypto platforms, and other similar websites/apps that require identity verification.