OTP Authentication Explained: Definition, Uses & Benefits
The importance of safe, user-friendly user authentication has become increasingly important for organizations of all sizes. While password-based authentication has long been a standard method, evolving threats and user friction have led to the consideration of alternative options. One notable solution that has gained prominence is one-time password (OTP) authentication.
What is a one-time password (OTP)?
An OTP is a dynamically generated set of numbers or letters designed to grant users one-time access to an application. Unlike traditional passwords, OTPs aren’t static and change every time a user attempts to log in. An OTP is sometimes called a one-time PIN, one-time passcode, or one-time authorization code (OTAC).
OTPs can be sent to users via SMS, email, messaging services like WhatsApp, or mobile push notifications. Alternatively, OTP generators such as hardware keys and mobile authenticator apps can be used for authentication. One-time passcodes are often a secondary factor in a multi-factor authentication (MFA) flow.
Let's dive into the world of OTP authentication and how it can streamline and secure the end user experience for your app.
Types of OTPs
There are two primary types of OTPs, each offering unique advantages and use cases: Time-based OTP (TOTP) and HMAC-based OTP (HOTP). Understanding the differences between these types will help you choose the most suitable option for your authentication needs.
Before going into the specifics of HOTP and TOTP, it’s important to understand how OTP generation algorithms generally work. Two inputs are used to generate OTP codes:
A seed. This static secret key is shared between the token and the server. It is created when a new account is established on the authentication server.
A moving factor. This is a component that changes every time a new OTP is requested. The main difference between HOTP and TOTP is how the moving factor is generated.
The “H” in HOTP stands for Hash-Based Message Authentication Code (HMAC). Thus, HOTP stands for HMAC-Based One-Time Password. In HOTP, the moving factor is a counter incremented every time a new OTP is requested.
This counter is stored on both the token and the server. The counter on the token increments by one when a new OTP is requested. The counter on the server increments by one when an OTP is successfully validated.
HOTP tends to be user-friendly since it doesn’t increment until the user requests a new OTP, making it suitable for scenarios where time synchronization might be a challenge. This means the user has ample time to enter the OTP. However, this also makes HOTP more susceptible to brute-force attacks.
HOTP was documented and published by the Initiative for Open Authentication (OATH) as RFC 4226 in 2005.
TOTP stands for Time-based One-time Password. TOTP's moving factor is based on time rather than incremental counters. The OTP changes after a specified period of time called a timestep, which is usually between 30 to 90 seconds.
TOTP is generally more secure than HOTP and tough to crack with brute force attacks. However, the user has to input the passcode before it refreshes, which introduces the possibility of time drift. To cope with this, the authenticating server must make it easy for users to input a new OTP if the previous one expires.
TOTP was published as RFC 6238 by the Internet Engineering Task Force (IETF) in 2011.
Understand the difference better: TOTP vs HOTP: A Complete Breakdown
Common OTP delivery methods
Here are the most popular OTP delivery methods in use today:
SMS / Text
SMS authentication lets users log in to applications by entering a code sent to their phone via text message. It verifies users with a possession-based factor (their mobile phone). SMS authentication is an improvement on simple static passwords since the passcode changes at every login attempt.
SMS authentication is convenient for users because it doesn’t require them to learn new behaviors or get new hardware. However, it is vulnerable to SIM swapping and man-in-the-middle (MITM) attacks, where adversaries can intercept text messages and gain fraudulent account access.
Although SMS authentication is still widely used, it has been met with recent security objections. In 2016, NIST proposed deprecating SMS as an out-of-band second authentication factor.
Email OTP works like SMS authentication, except the users get the one-time code sent to their email account instead of their phone number. It verifies users with a possession-based factor (their email account).
Almost everyone has an email account and accesses it regularly, making email OTP very convenient. However, the security of email OTP is linked to the safety of the email account. If attackers gain access to a victim’s email account after phishing or credential stuffing, they can use email OTPs to cause further damage.
Over the past few years, websites have begun using messaging apps such as WhatsApp and WeChat for OTP authentication. Choosing whether to send one-time passcodes over SMS, email, or other messaging apps is often a function of two things:
Which method users are most comfortable with
Which method has the most reliable delivery rates
Since messaging services like WhatsApp offer end-to-end encryption, they are better protected against MITM attacks. Messaging services can also operate over both cellular and Wi-Fi, making them accessible even when users are on international roaming.
In enterprise settings, OTP authentication is sometimes driven by dedicated hardware such as key fobs, smart cards, and Yubikeys. These devices generate OTPs based on a cryptographic key stored on the server. The server and the hardware device synchronize based on the shared secret key and independently generate the same OTP to validate the user’s login attempt.
Cybercriminals would need physical access to the hardware key before doing any damage, which is very unlikely. This makes hardware keys a very secure form of OTP authentication. A U2F security key reduces the attack surface since the OTP never leaves the token.
However, hardware keys impose restrictions on users since they must always carry the key on their person. Hence, this method is usually employed in workforce settings, particularly in sensitive industries such as healthcare and finance.
Software tokens can also perform OTP generation. Unlike hard tokens and security keys, these are not separate physical entities that users must possess. Instead, they are built into authenticator applications like Google Authenticator, Microsoft Authenticator, and Authy.
Mobile authenticators can be used for both enterprise and consumer contexts. These apps also do not depend on internet access or wireless carriers, making them usable in various scenarios. Authenticator apps that support biometric authentication add a strong second factor and protect users even if their device gets stolen.
Authenticator software uses the TOTP algorithm to perform time-based OTP generation and validation.
Benefits of using OTP authentication
OTPs are a vital component of the larger multi-factor authentication (MFA) market, projected to grow to $40 billion by 2030. OTP adoption will continue growing because it provides key benefits for organizations and end users.
Safer than just using passwords: OTPs are meant for one-time use, which makes them resistant to replay attacks where the attacker intercepts and records data (like a static password) to use later. Using one-time codes as a second factor reduces the risk if and when user passwords get stolen.
Primed for wide adoption: OTPs can be easily integrated into an application’s authentication flow. Users like one-time codes because they don’t need to be remembered and usually don’t require new hardware. Users are already familiar with common OTP delivery methods and don't need to learn new behaviors to use them.
Can be used for more than login: In addition to login, one-time passwords can be used as a factor in risk-based authentication. For example, a user can be asked for an OTP before they complete a high-value transaction on a banking app. Risk-based MFA gives users an enhanced sense of security without impacting their overall experience.
Drawbacks of using OTP
There is no authentication silver bullet, and that includes one-time passcodes. Here are some risks to keep in mind while using OTPs:
Depends on delivery rates: OTPs sent to users using SMS, email, and other messaging apps depend on reliable delivery. Missed messages, delayed texts, and email OTPs going to spam folders can lead to a poor user experience and drop-off.
Uses shared secrets: The seeds used in OTP generation are shared secrets, which is never an ideal security practice. Shared secrets make the server an attractive target for attackers. If they steal the secrets, they can generate passcodes to fraudulently access user accounts.
Susceptible to some attacks: As covered earlier, OTPs can be phished regardless of the delivery method. SMS authentication is prone to SIM swapping and MITM attacks. Email OTP depends on the security of the email account. Even TOTPs from authenticator apps can be stolen by motivated attackers in phishing and social engineering attacks.
Read more: Phishing-Resistant MFA Explained
Uses cases of OTP across different industries
OTP authentication is widely adopted and used across the public as well as private sector to enhance security and provide a good user experience. Here are some of the top industries that commonly utilize OTP authentication:
Finance and banking: The finance and banking industry relies on OTPs to secure online banking transactions, money transfers, and account access. OTP helps prevent unauthorized access and financial fraud.
Healthcare: Healthcare organizations use OTP authentication to secure patient records, comply with HIPAA regulations, and ensure that only authorized personnel can access sensitive medical information.
E-commerce: Online retailers use OTP authentication to secure user accounts and transactions, particularly for high-value purchases. This helps protect customer data and prevent fraudulent activities.
Government: Government agencies use OTP authentication to secure online portals and citizen services, such as tax filing, voting systems, and access to government databases. This enhances data protection and prevents unauthorized access to sensitive information.
Technology and IT services: Many technology companies and IT service providers implement OTP authentication to secure access to their platforms, databases, and cloud-based services. This helps protect valuable data and intellectual property.
Telecommunications: Telecommunication companies use OTP authentication to secure customer accounts and protect sensitive information, such as call records, billing details, and account settings.
OTP authentication with Descope
Adding OTP authentication to your app while taking care of all the security nuances can be time-consuming for developers who are also busy building core app functionalities. Descope helps developers easily add OTP authentication to their apps with no-code workflows, SDKs, and APIs.