One-Time Password (OTP)

If you've ever received a text message with a 6-digit code to log into your bank account, you've used a one-time password (OTP). These temporary codes are now a standard part of online security, showing up when you reset passwords or access sensitive information online.

OTPs offer something that regular passwords can't: proof that you're the person who's actually trying to access an account right now. A stolen password can be used by anyone, anywhere, at any time. But an OTP expires quickly and only works once, making it significantly harder for someone else to break into your accounts.

With data breaches exposing millions of credentials every year, businesses need additional layers of protection. Keep reading to learn how OTPs work, when to use them, and what security considerations you should keep in mind.

What is a one-time password (OTP)?

A one-time password –– or one-time authorization code –– is a unique code that's generated for a single login session or transaction. Unlike your regular password that stays the same until you manually change it, an OTP expires after a short period of time or after being used once.

Most OTPs are numeric codes between 4 and 8 digits. Some systems use alphanumeric combinations. The main advantage of OTPs is that they're only valid for one specific purpose and a limited time window.

This makes them ideal for multi-factor authentication, where you need proof of identity beyond just a password.

How does an OTP work?

The authentication process starts when you attempt to access a protected resource. The system creates a unique code using an algorithm that combines a secret key with a changing variable, like the current time or a counter.

The type of OTP you receive depends on how the changing variable works. Time-based OTPs (TOTP) rely on synchronized clocks between the authentication server and the device generating the code. The algorithm uses the current time as input, meaning the code changes every so often. Conversely, event-based OTPs (HOTP) use a counter that increments each time a new code is generated.

Once created, the code is delivered through your chosen method, which might be text message, email, or app notification. You enter the code where prompted, and the system verifies it matches what was generated on the backend.

The SMS verification process typically happens within seconds, and the code expires shortly after to maintain security.

What are the different types of OTP delivery methods?

Different situations call for different delivery methods. Your choice depends on your user base, security requirements, and the tools people already have. Here are the different ways businesses can verify a user's identity with OTP:

• SMS-based OTPs: Codes sent via text message are the most widely used method. They work on any mobile phone without requiring users to download additional apps. The SMS OTP process is straightforward. Users get a code and enter it on the login page. However, SMS delivery can be delayed by network issues, and text messages aren't encrypted, making them vulnerable to certain types of attacks.
• Email-based OTPs: Sending codes to email addresses offers broad compatibility since most people check email regularly across multiple devices. The email OTP approach works well for account recovery and less time-sensitive actions. Using email authentication protocols like SPF and DKIM helps verify that messages actually come from your organization, reducing the risk of phishing attacks.
• Authenticator apps (TOTP): Apps like Google Authenticator or Authy generate time-based codes directly on the user's device without needing an internet connection. These apps are typically more secure than SMS since the codes never travel over a network. Users scan a QR code during setup to link their account, and the app starts generating new codes every 30 seconds.
• Hardware tokens: Physical devices like YubiKeys or RSA tokens provide the highest level of security. They generate OTPs through a button press or USB connection. While they're more expensive and less convenient for everyday use, hardware tokens are ideal for protecting high-value accounts or meeting strict compliance requirements.
• Push notifications: These deliver OTPs directly through your app with encrypted channels. Apps like Microsoft Authenticator use this method, sending approval requests straight to your phone. When comparing push notifications vs SMS, push notifications offer better security and don't rely on cellular networks. However, they require users to have your specific app installed, which limits adoption compared to SMS.

Why are OTPs important for security?

Security breaches and account takeovers are growing threats for businesses and individuals alike. Traditional passwords alone can't provide the protection you need anymore. OTPs add an extra layer of defense that addresses many vulnerabilities that static passwords leave exposed.

Here's why they're important for security:

Enhanced security over static passwords

Static passwords have a fundamental weakness: once someone has your password, they can use it repeatedly until you change it. OTPs eliminate this risk by creating codes that expire automatically. Attackers can't stockpile them. The time-sensitive nature makes credential theft less effective.

Reduced risk of credential theft

Reusing passwords is one of the most common and biggest security vulnerabilities online. You might use the same password across multiple sites, which means a breach at one company can compromise your accounts at many others.

OTPs break this chain. They add a second factor that's valid for only a single login attempt. Because they're generated dynamically, there's nothing for attackers to steal from a database breach.

Ease of use for end users

From a user perspective, OTPs are simpler than remembering complex passwords or carrying additional devices. Most people already have their phones nearby. This makes it easy to receive and enter codes. Some apps can automatically detect OTPs from text messages and fill them in without manual typing, reducing friction while maintaining strong security.

When are OTPs commonly used?

You've probably encountered OTPs in various situations without thinking much about it.

They show up whenever a system needs to verify that you're really you, especially during high-risk actions or account changes. The goal is always to confirm your identity at the exact moment it matters most.

Here are the most common scenarios where OTP is used:

Two-factor authentication (2FA)

Two-factor authentication combines your password with your access to your phone or email. OTPs are that second factor, confirming that the person logging in has access to the account owner's verified contact method.

Financial institutions, healthcare portals, and business applications commonly implement OTP as part of their authentication flow.

Password resets

When you forget your password, OTPs sent to your registered email or phone number prove your identity before allowing password changes. This one-time pin prevents attackers from taking over accounts simply by clicking "forgot password" and guessing security questions.

Secure transactions and account changes

High-risk transactions like transferring money or changing contact information often trigger OTP verification. This prevents unauthorized transactions, even if someone has gained access to your logged-in session.

Accessing sensitive systems

Corporate networks and administrative panels frequently require OTP verification before granting access. This protects sensitive data and critical systems from unauthorized access, particularly for remote access to internal systems.

OTP vs traditional passwords: What is the difference?

At first glance, OTP and traditional passwords seem to serve the same purpose –– to give you access to your accounts. But the way they work and the security they provide are completely different.

Traditional passwords are valid indefinitely until you manually change them. This makes them vulnerable to theft and reuse. If someone learns your password, they can use it whenever they want until you realize there's a problem and update it.

Conversely, OTPs function as temporary credentials that only work for a single session or transaction and expire automatically. Even if an attacker intercepts an OTP, it's worthless within minutes.

The best approach is to use both OTPs and traditional passwords together rather than relying on just one. Traditional passwords are still necessary as the first factor of authentication –– they establish who you claim to be.

OTPs then add a second layer by verifying you have access to a specific device or account right now. You need both the knowledge factor (password) and the possession factor (OTP-receiving device) to gain access.

This combination makes it much harder for attackers to break in, even if they have your password.

What security risks should you consider with OTPs?

OTPs significantly improve security, but they're not foolproof. Attackers have developed ways to intercept or bypass them, which means you need to understand the vulnerabilities and how to protect against them.

The good news is that most risks can be mitigated with proper implementation and user awareness. Here's what you should watch out for:

SIM swapping and phishing

SIM swapping involves tricking mobile carriers into transferring a user's phone number to a SIM card controlled by attackers, allowing them to receive that person's SMS-based OTPs.

Phishing attacks work differently by creating fake login pages that can capture both your correct password and OTP in real time. They then relay your credentials before they expire. To combat these threats, use authenticator apps instead of SMS when possible, and always verify you're on the legitimate website before entering any credentials.

Delivery channel vulnerabilities

Organizations implementing OTP systems should never send codes through the same channel as the initial authentication request.

If that channel is compromised, an attacker would have access to both the user's password and the OTP meant to protect them. For example, if someone logs into a web account, the OTP should be sent via SMS or an authenticator app instead of email.

Systems also need to limit how many times someone can try entering an OTP. After a few failed attempts, temporarily lock the account or increase wait times between tries. OTPs should be stored securely on servers with encryption and never logged in plain text.

When sending OTPs via email, implement proper email security protocols to prevent interception during transmission.

Expiration and reuse risks

If OTPs stay valid too long, attackers have more time to intercept and use them. Additionally, if the same code can be used multiple times, someone who captures it once can keep trying to gain access.

Set appropriate expiration times based on your security requirements, typically between 5 and 10 minutes. Once an OTP is used successfully, mark it as invalid immediately to prevent replay attacks where someone captures a code and tries to use it after you've already logged in. Never allow the same code to work twice, even within the valid time window.

Implementing OTP in your systems

Once you've decided to add OTPs to your organization's authentication process, the next step is figuring out how to actually do it.

There's no one-size-fits-all approach here. Your implementation needs to match your users' capabilities, your security requirements, and your technical infrastructure. Here's what to consider:

Choosing delivery methods based on audience and risk

Consider your users' technical capabilities and available resources. SMS works for nearly everyone but has security limitations. Authenticator apps offer better security but require more technical knowledge.

Match your delivery method to the sensitivity of what you're protecting. Low-risk actions might only need email-based OTPs, while financial transactions should use authenticator apps or SMS at a minimum.

Integration options and API support

Most modern authentication platforms offer pre-built OTP functionality through APIs. Services like Twilio and AWS SNS handle code generation, delivery, and verification. Look for solutions that support multiple delivery methods so you can offer fallback options when the primary method fails.

Monitoring and logging for security

Track OTP usage patterns to identify suspicious activity. Multiple failed attempts or requests from unusual locations could indicate attacks in progress. Log successful and failed OTP verifications with timestamps and IP addresses to create an audit trail, but never log the actual OTP codes themselves.

Making authentication safer with one-time passwords

OTPs are an essential tool for protecting online accounts and sensitive data.

They address the fundamental weakness of static passwords by adding a time-sensitive factor that proves users have access to a specific device or account right now. Combined with strong passwords and user education about phishing risks, they create a robust defense against unauthorized access.

At Mailchimp, security is built into everything we do. We use industry-standard authentication practices to protect your account and your audience's data. Whether you're managing email campaigns, analyzing customer data, or building automated workflows, you can trust that your information stays secure.