What is a One-Time Password (OTP) and How Do They Work?

Verifying customers can be tricky. Businesses need a secure way to verify user identity to prevent unauthorized access to their accounts or systems. At the same time, they must minimize authentication friction that could result in user abandonment or reduced conversion rates. Traditional authentication methods can limit and affect this critical balance. Instead, OTPs (full form: one-time passwords or passcodes) provide easy and secure ways to authenticate users in a convenient and highly visible channel.

In this article, you’ll learn about OTPs, how they work, their business benefits and OTP examples from the WhatsApp Business Platform. Let’s start by defining OTPs.

A one-time password (OTP) is a unique and temporary code used to verify a user’s identity, usually when they’re logging into their account or performing a transaction. This password may be a four or six-digit code (e.g. 9237 or A87K90) that changes each time the code is generated.

A common one-time password example is when a user opts in to receive WhatsApp verification codes from a business, like a bank or online retailer. When attempting to log in, the company may verify the user’s identity and send a unique security code delivered directly via WhatsApp. They must enter that code to complete the login or authentication process.

This approach leverages authentication messages on WhatsApp where messages are travel encrypted to create an additional security layer. This layer helps avoid the security vulnerabilities of traditional username-password combinations — all while using a channel customers already know and love: WhatsApp.

OTPs work by sending generated numbers or alphanumeric codes through trusted channels like WhatsApp, SMS and email. This type of authentication is critical to validating a customer’s identity during moments like password resets and account recovery.

The one-time password process follows a standardized approach that balances security with user experience. This method ensures that only authorized users can access accounts or complete sensitive transactions:

1. User initiates action: A user attempts to create a new account, recover an account, or make a purchase. These actions initiate the OTP check.
2. System generates OTP: A unique, one time password is generated using encryption algorithms like TOTP (time-based) or HOTP (hash-based). More on this in the next section.
3. System sends OTP to user: The one-time password is sent to the user through messaging, SMS, email, push notifications, calling and more.
4. User receives OTP: The user receives the verification code and enters it into the requesting interface to verify identity.
5. System verifies user: If correct, the user is granted access to complete their intended action.
6. System prevents access: If incorrect, the user is denied access, potentially preventing bad actors from performing critical actions.

OTP generation typically occurs within seconds, making the process a quick and seamless experience for users. Because codes are shared in near real time, it helps minimize user friction. Once the password is used successfully, it becomes invalid and cannot be reused.

Note: When using both a password and one-time password, this is a form of two-factor authentication (2FA).

Now let’s take a look at the two primary types of OTPs: TOTP authentication and HOTP authentication. Since both are used in 2FA and MFA (multi-factor authentication) systems, it’s easy to confuse the two. Let’s define them a bit further.

OTPs are united by HMAC (full form: Hash-based Message Authentication Code), the core algorithm that combines a secret key and a mathematical function (hash function) to ensure a message is unique and authentic. It acts as a digital fingerprint that proves a message hasn't been tampered with and comes from a trusted source. However:

• HOTPs or HMAC-based one-time passwords create unique, single-use passwords with a shared secret key and a counter. This counter keeps track of each one-time password that’s generated and calculates a new code each request.
• TOTPs or time-based one-time passwords use the HMAC algorithm as well, but automate the event counter with a time-based counter. Meaning, a user must enter the code they receive within a specified time-frame or it becomes automatically unusable. With its time counter, TOTP authentication is generally considered more secure by limiting the amount of time a hacker can exploit codes.

Compared to static passwords, OTP codes deliver measurable business value through improved security and user experience, such as:

• Enhanced security: Because they can only be used once, they can be more secure than static passwords. Static passwords on the other hand can be used repeatedly until changed.
• Increased customer trust: The additional security of one-time passwords helps reassure customers that their accounts are protected, particularly during high-stakes transactions like payments or account changes.
• Streamlined user experience: OTPs offer a simple, secure and convenient login process. When delivered through a widely used channel like WhatsApp, the authentication process becomes familiar and simple for most customers.
• Compliance: OTPs help businesses meet security compliance requirements while maintaining operational efficiency.

Historically on Meta technologies, when people needed access to their accounts, created a new account, recovered a password, or performed two-factor authentication, authentication messages were sent through channels like SMS to verify identity. But SMS alone can be slow to deliver and doesn't have clear delivery indicators, among other drawbacks.

By sending these verification messages via WhatsApp, Meta achieved increased security and an enhanced user experience. OTP authentication messages on WhatsApp offer interactive, easy-to-use features that quickly verify people, making it more likely they’ll complete the authentication journey.

Results:

• 20% increase in account recovery success on Instagram*
• 11% increase in account recovery success on Facebook*
• 9% increase in new account creation on Instagram**

The right method for how to send OTPs to mobile numbers or additional communication methods involves factoring in user experience, speed, reliability, security and compliance. Here are some additional best practices to follow during implementation.

It’s important to use a multi-faceted approach with an app or platform that includes quick code generation and secure delivery. From a technical standpoint, this involves:

• Using secure, random generators that set appropriate code expiration times, typically within minutes for standard transactions and shorter windows for high-security operations.
• Restricting the number of OTP code attempts allowed in a given time frame, which helps prevent brute force attacks where hackers try numerous combinations at once.

By allowing users options for verification, you can send OTPs to mobile numbers or communication channels where users are most likely to receive them. For instance, WhatsApp authentication performs particularly well in markets where WhatsApp has high adoption rates, providing a familiar user experience.

If using Android OS, you can check if WhatsApp is installed. If it’s installed, you can suggest that the user receives OTP codes via WhatsApp.

Note: Remove the need for users to even tap or leave your app for an OTP with Zero Tap, available for Android and coming soon to iOS.

To better manage your approach to authentication, it’s important to:

1. Monitor key performance metrics like delivery rates, response times and user completion rates.
2. Regularly review performance to optimize user experience or identify issues early.
3. Address emerging security threats and maintain proper audit logging for compliance.

To help ensure compliance, WhatsApp requires businesses to collect opt-ins before sending authentication messages to users.

The WhatsApp Business Platform provides businesses with robust messaging capabilities through a collection of APIs that enable automated messaging at scale. For streamlining authentication, WhatsApp Business Platform acts as a TOTP authenticator to help businesses verify user identity and transaction security, featuring customizable one-time password templates for messages.

Many third-party solutions can help facilitate WhatsApp OTP website integrations, including Meta Business Messaging Partners. These solutions handle the technical complexity of website integrations while providing additional features like analytics and multi-channel support.

When implemented properly, OTP systems such as those on WhatsApp can drive enhanced security, increase trust, streamline processes and even boost new revenue streams by offering a solution that differentiates your business from competitors. WhatsApp offers broader adoption across an established ecosystem, making it a reliable choice for businesses.

Ready to get started? Learn more about the WhatsApp Business Platform features that can support your business.

What is the full form of OTP?

The full form of OTP is one-time password or one-time passcode. It describes a form of authentication between a business and a user to enhance security protections.

What is OTP authentication?

OTP authentication involves a unique and temporary password or code used to verify a user’s identity, usually when they’re logging in or performing a transaction. An authentication code is typically a four or six-digit code (e.g. 9237 or A87K90) that changes each time the code is generated.

Is OTP and 2FA the same?

No, OTP (one-time password) and 2FA (two-factor authentication) are not exactly the same. While both are used for authentication purposes, OTP refers to a single password or code sent to a user's device for one-time use, whereas 2FA involves two separate forms of verification, such as a password and an OTP or a biometric scan.