What is OTP (One Time Password) – Its Generation, Example and Benefits
OTP (One Time Password) is a unique set of numbers that an individual can use once for logging into a network or service or for online money transactions. This multifactor authentication login process has replaced authentication login information on many websites or is used in addition to it for enhanced security.
One of the primary reasons why an OTP is more secure than a static or user-generated password is it has an expiry time or date. Unlike the other types of passwords, you cannot use it across multiple devices or accounts.
What is an OTP?
An OTP (One Time Password) is a sequence of numeric or alphanumeric characters generated automatically for authenticating a user for a single transaction or login session.
A single login procedure means that after a user logs in with an OTP, it becomes invalid and cannot be used for a second time. However, it is more secure and reliable than a fixed password which can sometimes be weak or reused across multiple accounts.
How Does an OTP (One Time Password) Work?
The working of OTP is based on an algorithm that generates a new and unique code with each user request. However, it involves the following steps:
- Step 1: Generating OTP
An OTP generator can create either a Time-based One-time Password (TOTP) or an HMAC-based One Time Password (HOTP).
In a TOTP, the password validity depends on a particular time and provides more security. However, in a HOTP, the password is based on the counter. - Step 2: Sending OTP to the user
After the OTP is generated, it is sent to the user through SMS, email or other dedicated applications. - Step 3: Authenticating Server
Once the user receives the OTP and enters the same in the respective login session, the authentication server verifies it.
Also Read: What are Contactless Debit Cards and How to Use Them?
Why Would You Use OTP?
The fundamental factor that makes one-time passwords useful among users is that they expire after a particular time and cannot be reused. These two factors help increase website security and protect against information leaks.
Thus, these passwords provide strong authentication to protect systems containing sensitive data like corporate networks and e-banking.
How is an OTP Generated?
OTPs are created using an HMAC (Hashed Message Authentication Code) algorithm, which works on two components, moving factor and seed. The seed remains static, whereas the moving factor changes every time, resulting in the OTPs having random characters.
Here are the three different ways of creating a one-time password:
1. Security Tokens
A security token or OTP token is a hardware device protected by a PIN. It can generate OTP during your transactions.
When transacting, the user must enter the password and other credentials. An authentication server validates the login request if the credential details are entered correctly. However, a separate token is required for each website or network you are logging into.
2. Smart Cards
Smart cards are advanced hardware tokens that use a microprocessor to generate unique one-time passwords. They have significant advantages like data storage capacity, increased security, easy portability, and higher processing power. In rare cases, smart cards are capable of providing enhanced authentication possibilities, such as Public Key Infrastructure (PKI) with better encryption.
3. Grid Cards
are documents carrying figures in the form of grids for authenticating online transactions. However, these methods are slow, difficult to maintain and can be easily replicated.
How is OTP Helpful in Banking or Other Financial Sectors?
The primary task of a one-time password is to provide user authentication to a login session or transaction. However, it helps in preventing several cyber-attacks given below:
1. Phishing
Phishing exploits users’ emotions or lack of knowledge by impersonating an employee from a trustworthy service into sharing your account credentials. This works in a similar way as leaking your password.
2. SIM Swapping and Hacking
A hacker convinces your carrier to connect or switch your number to a SIM they own. This provides access to all the SMS OTP received by your phone number.
3. Account Takeover
Several wireless providers allow users to view text messages within their web portals. However, if a weak or common password protects your web portal, it can be easily hacked and cause leakage to any OTP SMS received.
4. Lost and Synced Devices
Losing your smartphone means you cannot receive OTP SMS from your device. Although, it is possible to sync messages between different devices and access accounts even without a phone. However, forwarding sensitive messages like this is not a good practice, especially when your account has an easily predictable password.
What are the Examples of OTP?
The two different examples of OTP are:
1. HOTP (HMAC-based One Time Password)
A HOTP is an event-based password-providing algorithm where the moving factor depends on a counter.
Every time a HOTP generates, the moving factor increments on the basis of a counter. However, this requested code is valid until you generate another code which is authenticated by the server.
2. TOPT (Time-based One Time Password)
A TOPT is a static password whose moving factor depends based on time.
Each password is valid up to a particular amount of time, known as timestep, which tends to be 30 seconds to 1 minute in length. If you do not use the generated password within that particular window, you will have to request a new one to gain access.
How to Get an OTP?
Once a one-time password is requested, it is received via SMS or email on your mobile device.
However, some institutions send these passwords through a voice IVR call on your registered mobile number.
What are the Benefits of an OTP?
The benefits of using OTP for authenticating transactions are:
1. Prevents Online Identity Theft
One-time passwords become invalid after a certain time, preventing online hackers from retrieving and reusing secret codes.
2. Reduces the Risk of Password Leaks
Users habitually recycle the same credentials across different accounts, reducing strong security measures. However, if this information is leaked, the user receives significant threats like fraud and stolen data on every front.
One-time passwords provide high security to prevent access breaches, even if the hacker acquires a valid set of login credentials.
3. Difficult to Guess
One Time Passwords are random four to eight-digit numbers generated with algorithms that are difficult for hackers to guess and use. Moreover, they are valid for a very short period, preventing attackers from identifying them.
For instance, if someone tries to identify a six-digit OTP, each digit will have 10 possibilities. This means there is a 0.000001% probability for a hacker to get it correct in such a short time, which is logically impossible.
4. Improves User Experience
Every organisation’s reputation depends on its customers’ trust, especially when their information is secured and not compromised. However, one-time passwords make this task easy with quick verification by providing enhanced security. This helps in improving the user experience.
How is Single-Factor Authentication Different from Two-Factor Authentication?
Two or multi-factor authentication has become a crucial process for organisations and individuals to protect their accounts, assets and data. But how does it differ from single-factor authentication? Look at the table discussing their differences given below:
| Single-factor Authentication (SFA) | Two-factor Authentication (2FA) |
| SFA requires only one type of evidence for authentication during a single session. | 2FA requires two types of evidence for authentication during a single session. |
| Here, the layers of security are comparatively fewer. | Here, the layers of security are in higher numbers. |
What are the Differences Between OTP, TOTP and Static Passwords?
Even though static passwords are still being used by users and are more convenient, OTP adds an extra layer of protection against online fraud. Here are the differences between OTP, TOTP and static passwords:
| OTP | TOTP | Static Passwords |
| A one-time password is a randomly generated algorithm-based password that may or may not have time limits. | A time-based one-time password is a randomly generated algorithm-based password that expires after a particular time. | A user creates static passwords that do not expire after using them for a single time. |
| It is valid for a single login session. | It is valid for a single login session. | This is valid for more than one login session. |
| It is a temporary password. | It is a temporary password. | This is a permanent password. |
Also Read: What is a Credit Card Pin and How To Generate One?
Final Word
Nowadays, several websites have the facility of online transactions, where the One Time Password (OTP) plays an important role. It helps in ensuring the security and authenticity of your financial transactions. However, regardless of which type of OTP you use for authentication, make sure to use it safely.
FAQs
Ans: Yes, many online banking service providers allow you to access your profile using your MPIN instead of an OTP. However, in most cases, you must enter an OTP sent to you via mail or SMS.
Ans: Yes, it is possible to send an OTP to a registered number and any other number not registered under that particular login. However, to do this, you must use a WhatsApp Business Solution Provider with this feature.
Ans: OTP generates when you try to login into your bank account, transfer money or purchase something. However, if someone else tries to hack your account will similarly require an OTP to log in even after knowing all your credentials. So if you share this OTP, you might lose all your money from your bank account.
Ans: You might require an OTP to create an account on a website or app. If you are unwilling to share your phone number, you can get a disposable phone number from websites providing this service. You do not need to register or pay any kind of fee for this service.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
