What is OTP in Banking? Use Cases, Delivery Methods & Tips

Whether you are trying to log in to a messaging app like WhatsApp or a highly secure banking app, you must have come across OTP, which is short for a one-time password. But do you know what exactly an OTP is? It is an automatically created string of characters that you have to use to verify your login sessions.

This is just the basic concept of an OTP. There is so much more to it. So, let's explore what an OTP is in banking and what its key applications are.

What is OTP in Banking?

Note

A one-time password (OTP) adds an extra layer of security to your online transactions. It is an automatically generated and unique 4-6 digits that essentially acts as a PIN to verify your banking transactions.

As the name suggests, an OTP is valid only once. This one instance in banking is usually a single transaction or a specific login session. OTPs play a vital role in maximizing the security of your online transactions as they offer much more security than simple user-created passwords.

Importance of OTP in Banking

OTPs are important to ensure the security of your funds in financial and banking institutions. The following are its key benefits:

Enhance security:User-created passwords are vulnerable to a variety of security risks, especially if you use the same password at multiple places. In such a situation, OTPs are important to ensure no unauthorized individual can access your account or make a financial transaction.

• Quick verification: An OTP is generated and sent to the user quickly, especially if the bank is using a reliable OTP delivery service. Hence, it ensures real-time verification to facilitate financial transactions securely and quickly.
• Easy to use: Generating, sending, and entering an OTP is no rocket science. Any organization, including banks, can easily implement OTP security measures, and users can also easily follow the instructions for entering the OTP into the relevant forum.
• Minimise fraud: Unauthorized transactions, hacking, and identity theft are some of the risks that a bank faces. Adding OTP as an extra layer of security minimizes the risk of fraudulent transactions to a great extent.

Applications of OTP in Online Banking

Let's look at some of the applications of OTP in online banking and financial organizations, along with real-life examples:

1.Login Verification

Most of the banks around the world now have two-factor authentication (2FA) or multi-factor authentication (MFA) to make sure the authorized user is signing in to their accounts. This 2FA is often OTP-based which means the user will receive a one-time password via SMS, e-mail, or WhatsApp. Such verification is important to prevent unauthorized access, even if a user has gotten access to your credentials.

Example

Here's an example of an SMS OTP sent by Skrill, a popular digital wallet for money transfer, to log into the account:

2.Fund Transfers

Another common application of OTP in the banking industry is when a user is trying to transfer money. Banks and money transfer apps like Google Pay and Venmo require an OTP before completing the transaction.

OTP authentication before a fund transfer is useful for minimizing fraud. For example, if some hackers can gain access to your banking account, they won't be able to transfer your funds due to the security offered by OTP.

Example

Here's an example of an OTP sent by Binance, a cryptocurrency exchange, to verify a financial transaction:

3.Online Payments

Other than transferring funds to other accounts, making online transactions is also an important part of Internet banking. It has become more prevalent with the rise of e-commerce stores, online shopping, and overall digital economy.

Therefore, to make online payments as secure as possible, banks now require OTP verification. It is typically applicable to both debit and credit card transactions. However, to make the process easier and quicker for users, most banking apps also allow users to add certain platforms, such as Amazon, to their list of trusted places where they don't have to enter an OTP on every transaction.

Example

Source:https://developer.visa.com/

4.Account Information Modification

Increasing cyberattacks have made your online banking information vulnerable to getting hacked or leaked. In such a situation, many banks now require OTP when you want to make changes to your account information.

Such changes can be to the attached mobile number, email address, password, ID, and any other such information. OTP authentication makes sure only you can make these sensitive changes and not a cybercriminal.

5.Cardless Withdrawals

Cardless withdrawals are not a new concept, but they are certainly on the rise due to the popularity of online banking and mobile wallets. Modern banks now allow people to withdraw cash from their accounts without using the cards. Instead, it is possible to enter an OTP at the ATM to complete the transaction.

Example

Source:https://av.sc.com/

OTP Delivery Methods

You might think that SMS and email are the two ways of sending OTPs to users due to their massive popularity. In reality, there are multiple channels available to organizations and banking institutions to deliver OTPs.

Each of these delivery methods has its pros, cons, and applications. So, let's go through the most popular OTP delivery methods.

1.SMS OTP

SMS OTP means delivering a unique one-time password to the user's mobile phone through a Short Service Message (SMS). It is one of the most popular methods of delivering OTPs due to its speed, efficiency, and security.

Delivering OTPs via SMS is not limited to the banking and financial industry. Many other types of organizations, applications, services, and online platforms use SMS OTP to bring an extra layer of security to their working process.

Here's an example of an SMS OTP sent by a bank:

2.Email OTP

Email is another popular OTP delivery method. This process involves sending a unique password to the user quickly so they can use it for authentication.

The general process of delivering OTP via Email or SMS involves the following steps:

• The user tries to log in to a system.
• An OTP is sent to the user via SMS or email. The OTP is typically of 4-6 digits.
• The user enters the OTP, and the server verifies it.

If the OTP is correct, the authentication is successful and the user gets access to the system, such as the banking app.

Here's an example of an OTP sent via e-mail:

3.Bank App OTP Generation

Well-developed modern banking apps are capable of generating OTPs within their own environments. It makes the entire authentication process quicker and easier as it eliminates the need for SMS or email OTP delivery. This process is normally called soft token authentication or app-based OTP generator.

The ideal use cases for app-based OTP generation are banks and financial institutions that need to verify online transactions and logins. Similarly, corporates and large-sized financial companies can have secure and custom apps to handle large transactions. Crypto and stock trading also often use app-based OTPs to ensure security.

Overall, banks that want to maximize security and prevent any SMS or e-mail-related fraud should consider delivering OTPs via their apps.

4.Hardware Tokens

A hardware token is a small device that creates OTPs at regular intervals. It is also called a physical security key or authentication device. Generally, enterprises and banks at risk of cyberattacks use hardware tokens for OTP authentication, but it is not common across the entire financial industry.

The working of OTP verification via hardware token is simple:

The client gets a small hardware device, such as a smart card or a key fob.

The device creates a time-sensitive unique OTP every 30 to 60 seconds.

The client enters the OTP to authenticate transactions and logins.

Source:https://calnet.berkeley.edu/

How to Use OTP Securely?

Here are some tips and tricks to help companies, especially banks, make the best of OTP authentication:

• Choose a Secure OTP Delivery Method:: Whichever OTP delivery method a bank might choose, it needs to be fully secure to ensure security from the very first step.
• Adopt Multi-Factor Authentication: Combine OTP authentication with other forms of user verification, such as double passwords or biometrics.

• Safe Generation and Storage: The process of generating OTPs and storing them in the database must be safe enough to ensure no unauthorized individual gets access to online banking.
• Add clear guidelines about OTP usage: All types of individuals use banking services, and they may or may not be familiar with how to use OTPs. So, the onus is on the banks to educate the users and prevent them from sharing OTPs with others.
• Use a Reliable OTP Technology: The success of OTP authentication is heavily dependent on the quality and efficiency of the technology a bank uses to generate and send OTPs. Therefore, organizations need to use up-to-date OTP technology that offers high security and efficiency.

EngageLab: A Reliable Platform to Send OTPs

The entire process of manually setting up OTPs can be complex and expensive unless you are using a platform like EngageLab that is specifically meant to engage customers and ensure security via methods like OTP authentication.

The OTP service of EngageLab is a complete package that is capable of generating unique one-time passwords, distributing them via multiple channels like SMS, email, voice, and WhatsApp, and authenticating them.

Secure IT infrastructure and advanced API technology behind EngageLab ensures OTPs are delivered to the users and the verification process is completed quickly. Such high security and quickness are important for OTP authentication in all organizations, especially Internet banking.

So, if you are looking for a reliable OTP authentication platform with easy integration and a user-friendly user experience, you should check out EngageLab.

FAQs

• 1

  What if I Don’t Receive an OTP?

  If you don't receive an OTP, you should use the ‘Resend OTP' option that is typically available on all such platforms. If the issue persists, you should contact the customer care of the bank to discuss your issue.
• 2

  How Long Is an OTP Valid?

  The duration of an OTP validity is dependent on the type of service you are using. Generally, an OTP is valid for anywhere between 30 seconds to 5 minutes.
• 3

  Can OTP Be Reused?

  No. OTP stands for one-time password, which means it expires after being used for the first time or once its validity duration has passed.

Summary

We are living in a digital era where cyberattacks are also becoming more sophisticated with time. So, it is vital for banks, as well as end-users, to consider the security of their financial accounts and protect their funds through measures like OTPs.

By following the tips and tricks discussed throughout this article, you will be in a great position to keep your bank accounts and funds safe and use OTPs whenever necessary to gain authorized access.