What Is a One-Time Password (OTP)?

To stay one step ahead of cybercriminals, companies secure customer accounts with two-factor authentication (2FA). One of the simplest but most effective methods of 2FA is a one-time password or one-time passcode (OTP).

What does OTP mean? Simply put, a one-time password is an autogenerated code that’s good for a single login and used to verify the user’s identity. Customers receive this token by email or SMS and enter it into the login form to access their accounts.

Time-sensitive, single-use OTPs replace static passwords to provide greater protection from fraud and data leaks. So if you want top-notch protection, consider OTP to offer customers peace of mind from bad actors accessing their accounts easily and reaffirm your organization’s reputation for security.

Continue reading to learn what an OTP is—and why OTPs are crucial to customer account security.

How do I get a one-time password?

End users will find it’s simple to get and use an OTP:

1. The customer attempts to log into an account using the typical username and password.
2. The customer receives an offer to further verify the account with a OTP if the account doesn’t recognize the device or wishes to further protect the user’s information.
3. The customer chooses whether they receive the code by email, text, or phone call.
4. The customer receives the OTP code within seconds.
5. The user must then enter this code correctly—and in a timely manner—to gain access to the account.

From the business side, it’s somewhat more complicated to set up OTP. First, you’ll need an API that enables your application to generate and verify a passcode. Then, to enable OTP verification, you’ll sign into your Console to get your account string identifier and authentication token. From there, you’ll create the new verification service, enable geographic permissions, and configure your API build.

Take a look at these step-by-step instructions for more details.

How do one-time passwords work?

Applications generate one-time passwords when clients request access. But what is OTP doing when an application generates a new code? It depends on what kind of OTP you use: the hash-based one-time password (HOTP) or the time-based one-time password (TOTP). The difference between them helps illuminate the inner workings of one-time passwords.

HOTP vs. TOTP

HOTP is an older authentication method that generates passwords based on an incremental event counter based on validations. While HOTP gives users flexibility on when they use their code, it also leaves more time for hackers to potentially infiltrate the system and increases the risk of sync issues.

By contrast, TOTP generates an OTP based on a short interval of time (30–120 seconds). With a code based on time, there’s less chance for potential bad actors to intercept the code. TOTP is also easy to implement as a software token accessed offline.

Additionally, research shows that TOTP is “more secure than other OTPs” like HOTP. However, some platforms may not support TOTP, and ultimately your choice will depend on what tools you have at your disposal. If you use Twilio, we recommend TOTP because many users will prefer it to other methods.

What can OTPs be used for?

One-time passwords serve a useful purpose, verifying a user’s identity when they attempt to sign into an account. However, OTPs can also enhance security after login, like in the case of a wire transfer within an online banking portal.

Today, you’re likely to encounter OTP authentication whether you’re on a website hosted by the government, a healthcare provider, insurer, financial institution, or employer. OTPs can authenticate a new user or device, complete a big purchase or money transfer, or reset a password.

Benefits of OTPs

In general, 2FA enhances account security, and OTP is no exception to the rule. Consider how OTP benefits you and your users:

1. Improve account security

The most obvious benefit of one-time passwords for 2FA authentication is to improve the security of your customer accounts. Unlike a customer’s personal password, a one-time password is never the same between login attempts.

To access the account, a hacker would also need to have control of the target’s phone or email account. While hackers can still phish or steal one-time passwords for authentication, it’s less likely, as they’re more likely to choose easy target systems that offer larger windows of opportunity. Simply put, hackers take the path of least resistance.

2. Reduce fraud and cybercrime

Stolen credentials are one of the main avenues hackers access sensitive data, so when you incorporate 2FA and use one-time passwords, you help prevent fraudulent activity. Beyond an individual’s account security, OTPS also enhance the security of your systems as a whole by restricting access to legitimate users. Top authorities in the field have said that 2FA can reduce cybercrime attacks by up to 80–90%.

3. Simplify the customer journey

Using a one-time password is simpler than many other forms of 2FA. All users need is access to their email or phone. Then, unlike with ATMs or business hardware authenticators, users can verify their identities using software-generated OTPs rather than costly or complex software. They can also avoid the frustration of an account lockout due to suspicious activity. This is more convenient for users and helps reduce friction.

Build your OTP experience with Twilio Verify

Ready to enhance your account security with one-time passcodes? With the Twilio Verify API, you can deploy an OTP through SMS, WhatsApp, voice, or email easily.

If you’re already familiar with the Twilio product line, you might recognize Verify as the next-level evolution of the Authy API but with additional features like helper libraries in several languages and improved visibility and insights. Learn more about how to build a one-time passcode experience with Twilio and try it for free.