What is One-Time Password and How It Works

OTPs ensure your transactions are authenticated, thus protecting you from malpractices

Your credit card and debit card details are valuable. If someone gets access to them, they can use them to make transactions, leading to severe losses. Therefore, security is critical, and banks have provisions to ensure your details are protected. Two-step authentication is one of the measures used to protect your data.

As the name suggests, it has two steps: first, you must enter your PIN or password. Later, a four or six number is sent to your registered phone number. This number is called an OTP. Read on to find out more about it.

What is the meaning of OTP?
 

OTP is an acronym for One-time Password. It is usually generated when you are trying to make a transaction. OTP usually contains numbers, but it can also carry letters and alphanumeric characters in some cases.

OTP is commonly used as the second step of authentication as it is more secure than the static password you create. In the event of a hack, your static password might be compromised, but a dynamic OTP stays more secure.

Most banks equip their users with OTP protection nowadays. The same goes for IDFC FIRST Bank. IDFC FIRST Bank offers unparalleled security, allowing you to conduct transactions without worrying about data or money loss.

What is OTP in debit card transaction? 

Your debit-cum-ATM card transactions require OTP in certain conditions. It won't ask for OTP when you pay at a POS terminal or withdraw small amounts of cash from an ATM. But some banks have enabled OTP authentication for higher cash withdrawals.

At the same time, OTP authentication is a must when you pay using your debit card online. It helps prevent online scams, hacks, and frauds.

What is OTP in credit card transactions? 

Most of your credit card transactions require an OTP, except when paying at a POS machine. You must enter it to approve the transaction before it expires. The validity of OTPs differs, although they generally range from a few seconds to up to a minute and more.

International card transactions
 

International transactions using your credit or debit card don't require OTP authentication. The RBI has enforced OTP authentication only for domestic transactions, and international transactions do not come under their purview. Hence, the wise idea here is to disable international transactions or enable them only when you need to do an international transaction.

Other scenarios where OTP is needed
 

Banks may enforce OTP authentication for specific actions to increase security. Let's look at some of those scenarios.

1. When you log in to net or mobile banking
 

Access to your net or mobile banking portal means access to your bank account. Hence, the bank will require a solid and complex password for your login. In addition, most banks have OTP authentication as well.

2. When you change your banking password
 

If your banking password is compromised, the first thing hackers would do is change your banking password to restrict your access. To prevent this, banks require you to authenticate using an OTP when you try to change your password.

3. When you send money
 

Finally, banks will ask for OTP when you send money to another bank account online. UPI transactions are exempt from this because they have a restricted sending limit.

An OTP is an essential piece of security information that adds extra secrity to your banking. Never share your OTP with anyone, including bank officials, to steer clear of scams.

Benefits of a one-time password
 

One-time passwords offer enhanced security. They are unique for each login and expire quickly, within a few minutes, reducing the risk of unauthorised access. This adds an extra layer of protection, especially when combined with regular passwords. OTPs are easy to use and provide peace of mind, safeguarding your online accounts from potential breaches and unauthorised accesses.

Why would you use one-time passwords?
 

Using a one-time password is crucial due to its robust security benefits. An OTP can only be used once, enhancing your online safety. It safeguards your accounts from hackers who might steal your regular password through phishing attacks and other malpractices.

Even if someone obtains your OTP, they won't be able to misuse it after its single use. OTPs are particularly useful for sensitive transactions, like online banking or accessing private emails, where you want an extra layer of protection. They are a simple yet effective way to fortify your digital presence and keep your personal information secure.

How are one-time passwords created?
 

Creating one-time passwords involves an extensive process that enhances security for online accounts. These unique, temporary codes are generated using a combination of algorithms, ensuring they are nearly impossible to predict. Here is the step-by-step process of how OTPs are created:

1. Initial request: The process begins when a user attempts to log in to a secure online platform, such as a bank's website or an email account. The system detects this login attempt and recognises the need for an OTP.

2. Server-side algorithm: The server, or the online service's security system, runs a sophisticated algorithm to generate the OTP. This algorithm uses various factors to create a unique code for this specific login session.

3. Seed value: The algorithm often incorporates a "seed value." This is a random or time-based value that changes constantly. It serves as a starting point for generating the OTP.

4.Time-based OTP: In some cases, the OTP is time-based. The system considers the current time as a critical component in generating the code. This ensures that the OTP remains valid only for a short duration.

5. Unique code generation: Using the algorithm and seed value, the system generates a unique, one-time code.

6. Secure delivery: The OTP must be delivered securely to the user. This is typically done through a secure channel or trusted communication method to prevent interception by potential attackers. This code is typically sent to the user through a text message, email, or a dedicated OTP app.

7. User input: The user receives the OTP and enters it during the login process, proving their identity for that specific session.

8. Validation: The server validates the OTP entered by the user. It uses the same algorithm, seed value, and other factors to generate an expected OTP for this session. If the entered OTP matches the expected one, access is granted.

9. Expiration: To enhance security further, OTPs typically have a short lifespan. If not used within the designated time frame, they become invalid, adding an extra layer of protection.

10. Single use: Crucially, OTPs can only be used once. After successful validation or if the OTP expires, it becomes useless, thwarting any attempts by cybercriminals to reuse it.

11. Security benefits: The combination of complex algorithms, time-sensitive elements, and single-use nature makes OTPs a formidable barrier against unauthorised access.

What is Single-Factor Authentication (SFA)?
 

Single-Factor Authentication (SFA) is a basic method used to confirm a person's identity when accessing digital systems or online accounts. It relies on just one piece of information or factor to grant access. Typically, this single factor is a password or a PIN (Personal Identification Number).

Here's how it works. When you create an account on a website or system, you choose a password or PIN, which serves as your unique identifier. To access your account, you enter this password or PIN when prompted. If the entered password or PIN matches the one stored on the system, you are granted access.

However, SFA has limitations. It's less secure compared to Two-Factor Authentication (2FA) because it relies solely on something you know (the password or PIN). If someone else discovers or guesses your password, they could potentially gain unauthorised access to your account.

To bolster security, many organisations now encourage or require the use of 2FA, which combines two factors, like something you know (password), something you have (a smartphone), or something you are (biometrics) for enhanced protection.

What is Two-Factor Authentication (2FA)?
 

As mentioned earlier, Two-Factor Authentication (2FA) is an extra layer of security for online accounts. It requires two different pieces of information to confirm your identity. Typically, you start with your password (something you know) and then add a second factor, often a one-time code sent to your smartphone (something you have). This ensures that even if someone knows your password, they can't access your account without the second factor. 2FA greatly enhances online security by making it much harder for unauthorised individuals to gain access to your personal information and accounts.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.