What is a One-Time Password (OTP)?

A one-time password is a secure authentication code that works just once, and for a short duration, to verify a user’s Identity before expiring, eliminating the risks of password reuse across multiple accounts.

Key takeaways

• Multi-layered protection: OTPs can strengthen security as part of multi-factor authentication (MFA) by requiring a unique, temporary code in addition to standard login credentials.
• Time-sensitive security: Most implementations use time-based algorithms (TOTP) that generate codes valid for only 30–60 seconds, reducing the window for potential attacks.
• Modern authentication landscape: While authenticator apps are the current standard for OTP delivery, organizations are increasingly adopting WebAuthn and passkeys for enhanced security.
• Implementation flexibility: OTP delivery methods include hardware tokens, mobile apps, and browser-based solutions, balancing security requirements with User Experience (UX).
• SMS vulnerability: OTPs delivered via SMS are vulnerable to SIM swapping, phishing attacks, and network-level interception.

Understanding the power of dynamic authentication

A one-time password (OTP) is a dynamically generated string of characters or numbers that authenticates a user for a single login attempt or transaction. Systems generate one-time passwords using sophisticated algorithms that factor in various security elements, such as time-based data, device fingerprints, or transaction context. From enterprise OTP deployment in large organizations to OTP for remote workforce security, one-time passwords offer flexible implementation options.

OTPs are a widely used component of two-factor authentication (2FA/MFA), providing an additional security layer beyond traditional passwords. Organizations commonly use them in passwordless authentication flows and as part of adaptive authentication systems that adjust security requirements based on risk levels.

Authentication systems typically rely on three independent factors:

1. Knowledge: Information the user knows (passwords, PINs)
2. Possession: Something the user has (authenticator apps, FIDO2 security keys, mobile devices, including OTPs)
3. Biometric: Unique characteristics of the user (fingerprints, facial recognition, behavioral patterns, continuous authentication signals)

Security teams commonly distribute OTPs through tokens and push notifications to leverage existing user devices.

How does OTP authentication work?

The OTP authentication process creates one-time passwords and validates them using shared secrets between an OTP app and an authentication server. Some systems may also use a secret link sent via email as an alternative delivery method.

Time-based one-time password (TOTP)

TOTPs are the most widely used type of OTP, functioning like a synchronized digital lock between your device and the authentication server. Time-based OTPs feature:

• Shared secret: The device and server maintain a shared cryptographic key
• Time synchronization: Both parties use precise timestamps
• Algorithm processing: The system applies SHA-1 or SHA-256 hashing functions to combine the secret and current time
• Code generation: Produces a temporary (typically 6-digit) code
• Validation window: Codes remain valid for 30–60 seconds, with servers typically accepting codes from adjacent time windows to account for minor clock synchronization issues

HMAC-based one-time password (HOTP)

While less common than TOTPs in modern implementations, HOTPs use an incrementing counter instead of time. HMAC-based OTPs feature:

• Shared secret: The device and server maintain a shared cryptographic key
• Counter synchronization: Both parties track an incrementing counter value
• Algorithm processing: The system applies HMAC-SHA-1 hashing functions to combine the secret and counter
• Code generation: Produces a temporary (typically 6-digit) code
• Look-ahead window: The server maintains a window to handle missed codes and prevent synchronization issues

One-time password examples:

• Banking and financial transactions: Online banking logins, wire transfers, payment verification, transaction approvals
• Enterprise security and VPN access: Remote access systems, VPNs, privileged accounts, internal networks
• Ecommerce and online payments: Checkout verification, card-not-present transactions, digital wallets, SCA compliance
• Account recovery and password resets: Password recovery, account verification, Identity confirmation
• Government and citizen services: Tax portals, social security accounts, public service platforms
• Healthcare and medical records access: Electronic health records, patient portals, prescription systems

Understanding how one-time passwords compare to permanent passwords helps organizations make informed security decisions.

What are the benefits of one-time passwords (OTPs)?

OTPs offer several advantages for organizations implementing strong authentication:

Enhanced security through dynamic generation

Unlike traditional passwords, OTPs resist replay attacks and protect against bad actors who might intercept authentication data during transmission. However, OTPs do not inherently prevent real-time man-in-the-middle (MITM) attacks if an attacker intercepts the OTP through phishing.

Additional security benefits of OTPs:

• Advanced algorithm protection: OTPs use cryptographic pseudo-random number generators (PRNGs), not “true” randomness. This provides security from the combination of secure PRNGs and cryptographic algorithms (e.g., HMAC-SHA1, HMAC-SHA256). These algorithms typically integrate multiple dynamic factors, such as timestamps and device identifiers.

• Time-limited exposure: With validity periods limited to seconds, attackers have a narrow window to exploit stolen credentials. This constraint is particularly effective against automated attack tools.

• Password reuse mitigation: Even when credential stuffing attacks expose compromised passwords across multiple services, OTPs can prevent account takeovers by requiring an additional authentication factor.

• Rate limiting and adaptive security: Many OTP implementations use adaptive security measures, such as dynamically adjusting validation windows and implementing incremental delays based on failed attempt patterns.

Compliance and risk management

According to NIST Special Publication 800-63B Digital Identity Guidelines, OTPs, when implemented as part of an MFA system, can help organizations meet Authenticator Assurance Level 2 (AAL2) requirements. However, OTPs alone do not meet AAL3, which requires hardware-based authentication.

Key compliance benefits:

• Meeting MFA requirements for regulatory compliance
• Supporting Zero Trust architecture implementation
• Facilitating compliance with GDPR, PSD2, and other regulations requiring strong authentication
• Providing audit trails for authentication attempts

Integration and adoption benefits

While OTPs offer protection, their success depends on seamless implementation and user adoption. 

Authentication solutions that incorporate OTPs provide:

• Streamlined integration: Organizations can leverage one-time password generator APIs and OTP validation services through standardized protocols like OATH TOTP/HOTP, which offer REST APIs and SDKs for mobile and web applications.
• User-friendly implementation: Smartphones and authenticator apps are ubiquitous, making OTP adoption familiar to most users.
• Flexible deployment options: Based on security requirements and user preferences, organizations can choose from multiple delivery methods, allow for phased rollouts, and accommodate various user technical comfort levels.
• Cost-effective security: Compared to traditional hardware tokens or complex biometric systems, OTP solutions often provide a more cost-effective approach to implementing MFA. Many solutions leverage devices users already own, reducing deployment costs.

Types of OTPs and delivery methods

Hard tokens

Physical devices dedicated to OTP generation:

Security keys (FIDO2)

Security keys offer advanced features:

• Built-in support for biometric authentication
• NFC capabilities for mobile device compatibility
• Multi-protocol support (FIDO2, U2F, TOTP)
• Physical presence verification

Smart cards

Enterprise-grade smart cards provide:

• Integration with physical access control systems
• Support for multiple authentication methods
• Offline authentication capabilities
• Hardware security module protection

Soft tokens

Software-based OTP solutions:

Mobile authenticator apps

Authenticator apps are preferred over SMS due to SIM-swapping risks and offer enhanced security features:

• End-to-end encrypted push notifications
• Offline code generation capabilities
• Secure backup and recovery options
• Cross-platform synchronization
• Biometric protection for app access

Browser-based solutions

Developments in browser authentication:

• Native WebAuthn support in modern browsers
• Biometric authentication integration
• No additional hardware requirements
• Phishing-resistant design

Implementation best practices

Security requirements

Code generation

• Minimum 6-digit codes (8 digits recommended for high-security applications)
• Cryptographic random number generation
• 30–120 second validity based on risk assessment
• Rate limiting on generation and validation attempts

Delivery method security

• End-to-end encryption
• Multiple delivery channel support
• Secure channel verification
• Automated monitoring for unusual patterns

Enterprise implementation

Organizations deploying OTPs at scale should consider the following:

High availability

• Load-balanced authentication servers
• Geographic distribution
• Real-time monitoring and alerting
• Automated failover mechanisms

Integration architecture
When planning OTP integration with Active Directory or cloud services like Azure AD/AWS IAM, organizations should consider:

• Identity provider compatibility
• API gateway security controls
• Directory service synchronization
• Comprehensive audit logging

Authentication methods comparison

Which authentication methods are best?

Not all authentication methods are equal. Implementing MFA improves on using passwords alone, but each authentication factor offers different degrees of protection.

SMS authentication: Convenience at a security cost

While SMS remains a widely used method for OTP delivery due to its familiarity, it presents significant security vulnerabilities:

• SIM swapping and social engineering: Threat actors can convince carriers to transfer a phone number to a new SIM card they control, gaining access to all SMS-based OTPs. This attack vector has become increasingly sophisticated, with malicious actors exploiting carrier customer service processes.
• Account takeover via web portals: Many carriers provide web portals where users can view SMS messages. If attackers compromise portal accounts through weak passwords or credential-stuffing attacks, they can intercept OTP codes without controlling the physical device.
• Device synchronization risks: Syncing messages across multiple devices expands the attack surface. When users forward or sync SMS messages to tablets, computers, or cloud services, each additional endpoint becomes a potential vulnerability.
• Phishing vulnerability: Social engineering attacks can trick users into revealing their primary credentials and SMS OTPs. Unlike modern methods, SMS OTPs do not protect against real-time adversary-in-the-middle (AITM) phishing attacks.

Hardware security keys: Strong security with trade-offs

Hardware security keys represent a significant security upgrade over SMS-based OTPs, offering several advantages:

• Phishing resistance: Security keys use asymmetric encryption algorithms that ensure the device never transmits authentication data
• Offline capability: Many tokens can generate codes without network connectivity
• Physical security: Hardware control introduces another layer of protection

However, hardware tokens present additional challenges:

• Device management: Requires distribution, replacement, and recovery procedures
• Cost considerations: Hardware purchases add an expense per user
• Compatibility issues: Not all devices support physical security keys, particularly in mobile environments
• UX: Additional hardware can be inconvenient for users to carry and manage

Authenticator apps: The modern standard

Mobile authenticator apps have emerged as the preferred solution for most organizations, offering an optimal balance of security and usability:

• Device binding: The system ties authentication to specific devices rather than phone numbers, which eliminates SIM-swapping risks
• Offline operation: Apps can generate codes without internet connectivity
• Enhanced security: Short-lived codes and encrypted push notifications reduce exploitation risks
• Biometric integration: Support for fingerprint and facial recognition adds an extra security layer
• Cost-effective: Many providers offer free solutions or include them with existing Identity platforms

WebAuthn: The future of authentication

Representing the latest evolution in authentication technology, WebAuthn offers unique advantages:

• Native browser support: Built-in support within popular browsers (Chrome, Safari, Firefox, Edge)
• Platform integration: Existing device security features like TouchID, FaceID, and Windows Hello
• Phishing prevention: Public key cryptography makes it virtually impossible to intercept or replay authentication attempts
• Streamlined UX: Users can verify their Identity using familiar biometric gestures
• FIDO2 compliance: Follows industry standards for strong authentication

Best practices for implementation

When choosing authentication methods, organizations should:

1. Layer authentication methods: Use authenticator apps as primary and WebAuthn where supported
2. Maintain backups: Keep SMS as a fallback option with additional security controls
3. Consider the context: Adjust security requirements based on risk levels and user needs
4. Plan for evolution: Design systems to accommodate emerging authentication standards

Organizations should transition toward passwordless authentication while maintaining OTPs as a secondary security layer. Modern authentication strategies should incorporate emerging standards like passkeys, WebAuthn, and phishing-resistant MFA.

FAQs

Q: How do I locate an OTP password?
A: OTPs are delivered through authenticator apps, SMS messages, or email when a user logs in or verifies their Identity. (The codes are not stored or accessible outside the generation process.)

Q: What does a one-time password look like?
A: Most OTPs are 6-digit numeric codes, though some systems use 4–8 digits or alphanumeric combinations. In authenticator apps, these codes typically refresh every 30–60 seconds.

Q: Are one-time passwords completely secure?
A: OTPs enhance security, but they aren’t foolproof. Best practices include:

• Using authenticator apps instead of SMS
• Never sharing OTP codes
• Enabling biometric protection for authenticator apps
• Implementing additional security layers for high-risk transactions

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