A Complete Guide to One-Time Passwords (OTPs): How They Enhance Security

When you get to work on a busy workday, receiving an urgent alert is the last thing you want. It would be a nightmare come true to find out that your company’s sensitive information has been exposed. As you investigate, you discover an attacker used a weak password to gain access to one of your user accounts.

That is all too real. According to Verizon's 2023 Data Breach Investigations Report (DBIR), 83% of breaches involved external actors, of which the top way attackers access an organization is by using stolen credentials. Not surprisingly, it’s almost about the money, 95% of breaches are financially driven.

In an era where data breaches can cripple businesses, securing data is a matter of death and life for your company. You can never be too cautious when it comes to data protection.

In this post, we will walk you through One-Time Password (OTP), a straightforward, user-friendly, and incredibly powerful method for secure user authentication that helps prevent data breaches from stolen credentials. We’ll also discuss how OTPs can benefit your business.

What is an OTP?

An OTP, also known as a one-time Personal Identification Code (PIN), one-time authorization code (OTAC), or dynamic password, is a string of numbers and/or characters generated and sent to a user for only one login attempt or transaction. An OTP can only be used once as its name implies, and it will expire after a short preset time or when a new one is generated.

The popular Google Authenticator is using OTP for implementing authenticating services.

What are the types of OTP?

The OTP includes two types: Time-based OTP (TOTP) and Hash-based Message Authentication Code OTP (HOTP).

• An HOTP is generated with a hash algorithm based on a counter that increments with each new OTP. HOTPs expire after use or a new HOTP is generated.
• A TOTP is generated by an algorithm that uses the current time as a source of uniqueness. TOTPs expire after use or a short preset time passes. TOTPs are more widely used and secure than HOTPs since it’s valid for a short window whether used or not.

Where do you use OTP to secure data?

No matter the nature of your company and which sector you operate in, OTPs can enhance security.

• Login security

Use OTPs to secure logins to online banking, enterprise systems, e-commerce, gaming, and social media accounts.

• Transaction authorization

Use OTPs to authorize financial transactions like online purchases, fund transfers, and high-value payments.

• Account recovery

Use OTPs to reset static passwords for email, online banking, messaging, social media, and other online accounts.

• Data and record access

Use OTPs to access sensitive or confidential electronic information such as health records, corporate data, and government documents.

• Remote access

Use OTPs to secure authentication for remote desktops, virtual private networks (VPNs), and remote employee access.

• Device authentication

Use OTPs to authenticate IoT devices and smart home systems.

• Travel and hospitality

Use OTPs to confirm booking, and check-in/check-out.

How do OTPs benefit you and your users?

OTPs will benefit both your company and your users. They strengthen security protocols for your company while also boosting your users’ trust and confidence in your service.

• Improve account security

Compared to static passwords, the greatest benefit of OTPs is that they are not vulnerable to replay attacks as they are dynamic, which significantly enhances security. OTPs can also be used as a form of multi-factor/two-factor authentication (MFA/2FA) to enhance the account security of your users.

• Reduce scam-related losses

OTPs are highly effective in reducing the risk of scams, especially in financial transactions. By requiring OTPs for authorizing transactions, scammers or other unauthorized users are less likely to gain access. Even if an attacker obtains an OTP, the OTP would be obsolete by the time they attempt to use it. You and your users will better avoid scam losses.

• Easy to build and scale

OTPs can be built into your systems, apps, or other products simply through Application Programming Interfaces (APIs), requiring minimal development effort. Besides, the OTP systems are built to handle large volumes of messages, ensuring that OTPs will always be delivered on time even as the user base grows.

• Improve user experience

Unlike static passwords, easy OTP authentication spares users from the frustration of forgetting their passwords. Besides, OTPs are super easy for new users to use, all they need to do is check their emails or phones to get the code and enter it into the proper field. This ease of use with OTPs helps you retain users at the first threshold.

• Reduce IT hassles

By using OTPs, your company can reduce the hassles of IT support in handling password resetting.

How do you and your users use OTPs?

You can pick an OTP service provider to integrate OTP service into your system, apps, or other products. Whenever users initiate actions requiring authentication, like logging in or conducting transactions,  they’ll receive an OTP on their emails or phones. They must then enter this OTP into the designated field. The service provider verifies the submitted OTP to complete the authentication process.

How do you pick an OTP service provider?

While selecting an OTP service provider, you should consider several key factors to ensure the service simultaneously meets your security needs and user experience expectations.

• Delivery channels

Check if the variety and reliability of delivery methods (SMS, email, voice, and apps) the provider offers meet your users’ preferences and geographical coverage needs. If your user base is international, ensure the provider can deliver OTPs reliably across the globe, considering the local regulations and network challenges.

• Security and compliance

Verify if the provider adheres to industry standards and regulatory requirements relating to your business to secure sensitive information and maintain compliance.

• Cost

Understand the pricing structures, including costs per OTP sent, any setup fees, and recurring charges, and make sure it fits in your budget while meeting with your needs.

• Support and service-level agreements (SLAs)

Ensure the provider offers a wide range of support options and the SLAs guarantee service availability and response time.

Given our priorities, EngageLab OTP stands out as the best choice. It not only meets but exceeds your requirements for security and scalability. EngageLab OTP supports sending OTPs through multiple channels including SMS, emails, voice, and WhatsApp for authorizing global users.

Why is EngageLab OTP the right choice for you?

Apart from the mentioned benefits OTPs generally offer, EnagageLab OTP offers you additional advantages.

• Ready to use out of the box

You can integrate EngageLab OTP into your system for verification of sign-up, login, transaction, and information updates simply through two APIs and manage OTPs through EnagageLab Console.

• Improve conversion rate

Beyond the multi-channel delivery feature, you can set an OTP resend policy to ensure the OTP is sent to the user properly. You can improve the conversion rate by doing this.

• Support message templates and customization

You can create templates for different languages, styles, lengths, types, and expiry times of OTPs on EngageLab Console. Additionally, you can also tailor the OTP resend policy for different business needs.

• Offer visual data report

Using the visual data reports generated on EngageLab Console, you can keep an eye on the delivery, conversion, and distribution of OTPs across all regions and channels. This allows you to study user behavior thoroughly and make strategic changes to your business plan.

Moreover, the security mechanism of EngageLab OTP will encourage you to pick it up even more.

• Identify and address fraud threats

EngageLab OTP guarantees the security of user accounts and transactions and takes precautions through identifying and monitoring scam tactics including SMS pumping, International Revenue Share Fraud (IRSF), and fake registration.

• Detect and block attacks

EngageLab OTP can detect and block attacks through a variety of techniques such as limiting the verification frequency and geographical access, employing AI detectors, and cross-referencing phone numbers.

• Guarantee service reliability

Engagelab OTP provides multiple failover channels in case the service interrupts. This ensures your service reliability by allowing smooth channel switching and zero downtime.

• Adhere to laws and regulations

EngageLab OTP adheres to international standards in every area including data and transmission, ensuring its service complies with laws and regulations in various nations and areas.

Now that you’ve seen what EngageLab OTP has to offer, sign up for our risk-free, cost-free trial. Start your journey and experience firsthand how it can revolutionize the verification process.