What is a One-time PIN code (OTP code)?

A one-time PIN code is a code that is automatically generated and sent, usually to a mobile device, to allow a single login session or transaction. 

Also called a one-time-pass code is a key component of 2-Factor Authentication (2FA) solutions that are used by most financial service providers to provide the highest level of security to customer transactions. 

The idea is that the PIN is valid for only one use or for a short period, making it more difficult for unauthorized individuals to gain access to an account or system. 

They are popular with users as they are quick and easy to use, and popular with businesses as they are a very cost effective way of securing transactions and avoiding costly fraud incidents. 

How do one-time passcodes work? 

Here’s how it typically works: 

  • Request for authentication: When a user tries to log in or perform a sensitive action (such as making a financial transaction), the system requests additional verification beyond a username and password. 
  • Generation of OTP code: The system generates a unique numerical code, known as the one-time PIN, and sends it to the user through a secure channel. 
  • User input: The user receives the code and enters it into the appropriate field on the website, application, or device. 
  • Verification: The system checks if the entered code matches the one it generated. If the OTP code is valid and matches, the user is granted access or allowed to complete the transaction. 
  • Expiration: One crucial aspect of one-time passcodes is their short validity period. They are designed to be used within a limited timeframe, usually a few minutes, to reduce the risk associated with interception or unauthorized use. 

How are the one-time PIN codes generated? 

The generation of one-time PIN codes relies on the authentication server and user device having access to the same secure ‘knowledge’. 

There are two types of code: 

  • HOTP (hash-based one-time password): These codes are based on a counter, which is incremented each time a code is generated. In this way, the same code can never be used twice and will expire as soon as the next code is generated. 
  • TOTP (time-based one-time password): As the name suggests, these are an extension of HOTPs that are only valid for a set period of time, usually under 3 minutes, making them even more secure. 

How are one-time PIN codes delivered? 

The most common way of delivering a one-time PIN code is via SMS to a mobile phone. All mobile phones can receive SMS, there is no requirement for data or an internet connection, and the fact that mobile phones usually require their own code to unlock adds even more security. 

They can also be delivered through proprietary tokens, though these are less popular as they require a person to carry the token at all times. 

Why are one-time PIN codes better than normal passwords? 

What makes one-time PIN codes so secure is that they can only be used once, and can be set to expire after a short period of time. Even though normal passwords can be very complex, they are usually only changed every few months, or sometimes never. This makes them far more susceptible to hackers and data breaches. 

In the most secure solutions, one-time passcodes and passwords are used together to provide the highest protection from fraud. 

What are the benefits of one-time passwords? 

Using a one-time password as an additional layer of authentication method provides several benefits including: 

  • Enhanced security: They add an extra layer of security beyond traditional username and password authentication. Since the password is valid for only a short period or a single use, even if it is intercepted, the window of opportunity for malicious use is limited. 
  • Reduced risk of credential theft: Traditional passwords can be vulnerable to phishing attacks, keyloggers, or other methods of credential theft. One-time PIN codes mitigate this risk because even if the static password is compromised, the OTP codes add an element of dynamic and time-sensitive verification. 
  • Compliance with regulatory requirements: Many industries and regions have specific regulations regarding data security and user authentication. Implementing OTP codes can help organizations comply with these requirements and demonstrate a commitment to securing user information. 
  • Secure remote access: They are particularly useful for secure remote access scenarios. Whether accessing corporate networks or online services, one-time passwords provide an additional layer of protection, making it more challenging for unauthorized users to gain access. 

One-time password examples 

One-time passwords can be generated or delivered through various methods. Here are a few examples: 

  • SMS OTP: The most common method involves sending the one-time passwords to the user’s mobile phone via text message. 
  • Email: They can be sent to the user’s email address. 
  • Mobile apps: Many services use mobile apps for OTP generation. Time-based one-time passwords (TOTPs) are often generated within apps like Google Authenticator or Duo Mobile. These apps synchronize with the server to generate a new password every few seconds. 
  • Hardware tokens: Some organizations issue hardware tokens that generate one-time passwords. The user presses a button on the token to generate a unique code that they then input for authentication. 
  • Voice Call: In some cases, an automated voice call may deliver the one-time PIN codes. The user receives a phone call, and a recorded voice provides the password, which the user then enters for authentication. 
  • Biometric: Biometric information, such as fingerprints or facial recognition, can be used to generate secure, one-time codes for authentication purposes.

Use cases of one-time passcodes

Online banking

They are often used in online banking for transaction verification and login authentication. 

Users receive OTPs via SMS, email, or mobile apps to confirm financial transactions or log in to their accounts securely. 

eCommerce transactions

During online purchases or transactions, they can be used to confirm the legitimacy of the user. 

This adds an extra layer of security to prevent unauthorized transactions. 

Identity verification

One-time PIN codes are used for identity verification in various online services, ensuring that the person attempting access is the legitimate account holder. 

This is particularly crucial in scenarios where personal information or sensitive data is involved. 

Password recovery

They are sometimes used in the password recovery process. 

Users receive a one-time PIN to verify their identity before resetting a forgotten password. 

Healthcare data access

In healthcare systems, they can be employed to secure access to patient records or other sensitive healthcare data. 

This helps maintain the confidentiality and integrity of healthcare information. 

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Jan 18th, 2024
5 min read