What is a one time password (OTP)? Features and benefits explained

In a world full of commercial communication fraud, wouldn’t it be nice to have a way to know that you are talking to the right people? The more we conduct our lives online, the more we need authentication solutions to protect our identity and data.

It turns out that a one time password (OTP) and two-factor authentication (2FA) are effective solutions for protecting users on a global scale. 

OTPs are a remarkably simple and cost-effective way for organizations to verify and protect their customers’ and employees’ personal information. If you’re interested in learning more about how you can instantly validate your customers from anywhere in the world — and save your organization time and money in the process — then this guide is for you.

What is one time password (OTP)?
One time password (OTP) is an identity verification tool for authenticating users who log into an account, network or system. The user will receive a password that contains a unique numeric or alphabetic string and can only be used for login once.

Thanks to their time sensitivity and single-use, OTPs provide both end users and businesses with a great layer of protection against fraud and data leaks. 

How can I get a one time password?

For the end user, getting an OTP is quite easy, making the experience secure but effortless. Here’s one example:

Step 1: A customer attempts to log on to their online banking account from their phone.

Step 2: The bank doesn’t recognize their device. To protect the user’s information they offer to send a verification code via SMS, phone call, push notification, or email.

Step 3: After the customer selects their preferred delivery method, they get an OTP key within seconds.

Step 4: The user proceeds with their login, entering the key along with their ID and password and…voila! They’re free to enjoy all of their online banking tools.

Pretty cool, right? Behind the scenes, all kinds of magic happened to generate and deliver that one time password to the customer’s screen. We’ll reveal the magician’s secrets in the section below.

Endless OTP use cases and examples
Okay, not exactly endless, but pretty close. With verification more critical than ever, we’re seeing more and more industries opt for two-factor authentication supported by OTPs linked to user devices.

Some of the industries that are successfully transforming the user validation process include:

  • Financial services and digital banking
  • IT services
  • Business administration
  • Health care
  • Insurance and employee benefit providers
  • Government services
  • Retail and e-commerce


  • User authentication
  • Device authentication
  • New user registration
  • Sign up and login
  • E-commerce transaction confirmation
  • Password registration and resets
  • Money transfer validation

With such a wide range of possibilities, OTPs offer some spectacular benefits.

What are the benefits?

We’ve been eager to tell you! The core benefits boil down to:

  • Enhanced fraud and data protection
  • Scalable global reach on mobile devices
  • Convenience and ease of use

But each benefit deserves some special attention, so let’s dive in.

Stops identity thieves in their tracks

Businesses that utilize OTPs for user authentication make it far more difficult for someone to break into a customer or employee’s account and steal personal information.

As a demonstration, let’s consider what happens when an unauthorized person attempts to access another’s account. The rightful user receives a code that they didn’t request. Now that seems strange.

While the organization can only guess if the login was legitimate or not, the user knows immediately something is fishy and takes action to further secure their account by updating their password.  

Verification messages may also be sent to the user’s registered mobile number or email address when another unregistered device is used for account access. If needed, the account holder can easily flag any unusual activity with the click of a button.

Instead of locking a user’s account with any sign of suspicious activity, which would be extremely frustrating every time it actually is the user, the user is in complete control. And as an added bonus, these types of alerts let people know that businesses are actively monitoring and protecting their personal information, which goes a long way to earn trust! 

Highly improbable for others to guess

For such a simple idea (four to eight random numbers), OTPs are remarkably effective at mitigating the risks that come from weak password security. 

Let’s look at this mathematically. If you issue a random six-digit code, an identity thief has to guess each number correctly within a short expiration window.

That means 10 possibilities (zero through nine), six times (10x10x10x10x10x10).

In other words, an identity thief has a one in a million chance of getting your OTP right, or a 0.000001% probability. 

That’s just for your standard six-digit OTP. If they include eight digits, the would-be identity thief would probably have a better chance of winning the lottery.

Gives your IT support a break

We’ve all got dozens of passwords and usernames to remember. Who hasn’t forgotten at least one? From the streaming service account to online newspaper subscriptions, it’s no small task keeping track of all that info.

It’s human to be forgetful. Without alternative verification methods, IT staff or customer care will get called in to help people regain access to their accounts,  and that time adds up fast.

OTPs can instead be used to reset passwords and save countless hours of manpower. As a result:

  • IT and customer support teams have more time to focus their efforts on more productive tasks and business-critical issues.
  • The user has a quicker and more convenient method of resetting their password and regaining access to their account.   

Easy for organizations to integrate and scale

Using Verify API, organizations can easily build OTPs into their apps and products.

In just a short amount of time, these programmable verification integrations can quite literally pay for themselves by:

  • Safeguarding against internal and external cybersecurity threats
  • Securing customer trust 
  • Freeing up your valuable human support resources to focus on higher-level goals

Improves the user experience

Any organization’s reputation is built on customers trusting their brand. You don’t want to have to tell your customers their data has been compromised, do you? We didn’t think so!

Multi-factor authentication solutions like YCloud’s Verify API provide security at scale and a buttery-smooth UX. 

One simple integration makes verification quick and easy through a user’s mobile device:

  • Everyone has SMS on their mobile phones 
  • It’s a familiar and comfortable communication channel
  • People can receive texts almost anywhere in the world for next to nothing 

Stay tuned for more on this front from the YCloud Verify team (or get in touch for more information) and we can’t wait to see what you build and secure.

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