The one-time passcode (OTP) is a temporary password a mobile device receives to allow a user to login or conduct a transaction securely. ​OTPs​ are the primary component of 2-factor authentication (2FA) solutions as a fast, easy, and secure way to authenticate user identity. 

The financial sector secures transactions and prevents fraud by using one-time PINs, though other industries use the technology extensively as well. Most people even use 2FA schemes for social media and other personal uses. 

How do one-time PINs function? 

When a user attempts to login to a company portal, the OTP server sends the user’s device a one-time message containing a temporary password. The message might go through SMS text messaging, though other options like Internet-enabled authentication apps are available. 

It’s worth noting that security teams often discourage SMS OTP because of its security vulnerabilities. The National Institute of Standards and Technology and the European Union Agency for Cybersecurity (ENISA) have both echoed this belief. 

Multi-factor authentication (MFA) sometimes overlays a standard username and password setup for even more security. A potential identity thief is unlikely to have both the login credentials and access to the user’s device simultaneously. 

Are there other advantages to using OTP? 

OTP also offers some peace-of-mind for users. Should a user receive an OTP message without attempting to login, it may be a sign the user’s credentials are compromised. Changing the username and password is then necessary. 

From the business side, OTP minimizes the chance of user frustration regarding login problems. Without it, companies might have to lock accounts over suspicious activity and work out solutions through customer support teams. Even offering OTP is a sign you care about the data privacy of your users, which goes a long way to building trust. 

OTP is also a highly scalable security solution. Even as your services and consumer base grow, you can easily ​integrate 2FA​ into your applications and keep your clients safe without frustrating them. 

What are some use cases for one-time PINs? 

The applications of a highly secure authentication solution are many. Industries rely on dependable user validation for: 

• IT and technologies 
• Financial services and banking 
• Healthcare and insurance 
• E-commerce 

Specific uses for OTP range from user and device authentication to: 

• Registering new users and signing up new accounts 
• Confirming online transactions and transfers 
• Resetting passwords or login credentials 

What types of OTPs are available? 

The two types of one-time PINs are hash-based and time-based. 

A hash-based one-time password (HOTP) generates itself based on a counter that changes after each code generation. This way, no two codes are alike. 

A time-based one-time password (TOTP) expires after a short time, after which the OTP server generates another password. No one password is usable twice, and the fast expiration time minimizes the chance of interception by an identity thief. 

How do OTPs compare against passwords? 

Traditional passwords have a variety of weaknesses. 

• Users may not choose a sufficiently secure password. It might be easy to guess or too short. 

• Passwords rarely change, whereas one-time codes automatically rotate. Passwords are susceptible to data breaches this way. 

• It can be easy to forget a password, while OTPs generate automatically and show up on the user’s personal device. 

The most secure applications and websites always call for both a traditional password login and a form of multifactor authentication for maximum security. 

How can you implement one-time codes at login? 

Companies generate OTPs in a variety of ways, each of which comes with its own cost vs. security trade-off. 

• Security grids. Businesses often share cards containing random characters arranged in a grid to their employees. The login asks the user to input whatever character is in a specific row and column of the card. This method is effective but also slow to use and easy to replicate. 

• OTP tokens. Tokens are physical devices that generate one-time passwords. These devices themselves might require a PIN to access, adding an extra layer of security. Tokens are popular in enterprise applications but remain too unwieldy and expensive for consumer use. 

• Smart cards. Electronic cards with internal processors to calculate OTPs. This method is the most secure as it does not transmit any confidential data over a network. Many business laptops offer a slot for smart card insertion. 

Smart cards can even utilize public key infrastructure (PKI) for additional functionality: encryption, private key generation, and digital signatures. 

What are the benefits of OTPs? 

• Enhanced Security: OTPs provide an extra layer of security by generating temporary passwords, reducing the risk of unauthorized access. 
• Password-related Issues Mitigation: OTPs address password-related vulnerabilities such as weak passwords and password breaches. 
• Two-Factor Authentication (2FA): OTPs are commonly used in 2FA systems, adding an additional verification step for stronger security. 
• User Convenience: OTPs offer a convenient authentication experience without the need to remember complex passwords. 
• Versatile Implementation: OTPs can be easily integrated into existing systems and applications, allowing scalability across platforms. 
• Fraud Prevention: OTPs play a crucial role in preventing fraud and unauthorized transactions. 
• Compliance: OTPs help meet security regulations and compliance standards in various industries. 

How does Sinch work with OTPs? 

We utilize OTPs (one-time passwords) for secure user authentication and fraud prevention. Our OTP verification service supports multiple delivery channels, ensuring scalability and compliance with global standards. By leveraging OTPs, we help businesses and developers implement secure authentication solutions.