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One-Time Password (OTP)

Overview

A One-Time Password (OTP) is a temporary, unique code used for user authentication during logins or transactions. OTPs are typically delivered via SMS, email, or mobile apps, and expire after a short duration. They enhance security by ensuring that even if a password is stolen, an attacker cannot gain access without the OTP.
Regulators often mandate OTPs as part of multi-factor authentication (MFA) requirements for payments and digital banking. Banks, fintechs, and e-commerce platforms rely on OTPs to secure accounts and prevent fraud. While effective, OTPs can be vulnerable to SIM swap or phishing attacks, which is why they are often paired with stronger authentication methods.

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Related Terms

Multi-factor Authentication (MFA)

FAQ

What is an OTP?

A temporary, unique code used for logins and secure transactions.

Why is it important?

It adds a second layer of security to reduce account takeover risks.

Who mandates OTP use?

Regulators under MFA or strong customer authentication rules.

What are its risks?

OTPs can be compromised by SIM swaps or phishing.