What is SMS OTP (One-Time Passcode) verification?

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As more and more businesses nowadays increasingly move online, securing user interactions has become crucial. One effective tool in achieving this is SMS OTP (One-Time Password).

But what exactly is SMS OTP, and why is it crucial for modern businesses to implement this technology? In the following article, we will delve into these questions and uncover how SMS OTPs can significantly boost security measures.

What is SMS OTP?

SMS OTP (Short Message Service One-Time Password) is a security protocol that relies on a single-use password sent via text to a user’s mobile phone. This password is necessary to complete a login or transaction process, ensuring that access or authorization is granted only to users who carry the registered mobile device.

Since it’s a form of two-factor authentication (2FA), SMS OTP is critical in protecting against fraud, especially regarding online transactions. It ensures that the transaction is initiated by the account’s rightful owner, especially in scenarios involving high-risk or large financial transactions.

SMS OTPs are also crucial for secure login processes, particularly for sensitive accounts in banking, healthcare, and public services. They take out risks such as phishing attacks and credential stuffing.

How does SMS OTP work?

1. The process is triggered when a user attempts to access a secure service or complete a transaction that requires authentication beyond just a username and password. The user initiates a session by entering their login credentials.
2. Once the initial login is successful, the authentication server generates a one-time password. This OTP generation is done using one of two methods:

a) Time-Based One-Time Password (TOTP): uses the current time as an input for the OTP generation algorithm. The server and the user’s device both synchronize time closely. TOTP passwords are valid for a short period, usually 30 to 60 seconds, so another quickly replaces each OTP.

b) HMAC-Based One-Time Password (HOTP): is based on a counter that increases with each new OTP generation. The counter’s value is used as an input to the OTP algorithm. HOTPs are not time-dependent, so they remain valid until used.

3. The generated OTP is then texted to the user’s mobile phone. This step assumes that the user’s phone number is pre-registered and verified.
4. The user receives the OTP on their mobile device and inputs it into the application interface. The server then compares this entered OTP with the one it generated. If the two match, the user is authenticated, and the transaction or session proceeds.
5. Once used, an OTP cannot be reused. This single-use limit is crucial for the security of the OTP method.

Are SMS OTPs safe?

The security of an OTP system depends on its degree of randomness. Ideally, OTPs should be generated using a cryptographically secure pseudo-random number generator (CSPRNG) to ensure that it’s not predictable. If the OTP is predictable, it can lead to vulnerabilities where an attacker might guess it and gain unauthorized access.

Stronger hashing algorithms provide better security by reducing the likelihood of successful attacks, including brute force. Commonly used algorithms include HMAC-SHA1 or HMAC-SHA256.

OTPs are usually meant for single-time use. However, the medium that is being used for their transmission – SMS – can be subject to potential threats, as texts might be intercepted or redirected. This happens as a result of flaws in the SS7 protocol, used by mobile networks for signaling.

The human factor also poses a risk as hackers can use phishing attacks to trick users into divulging their OTPs. This is why user education and secure app design are crucial for adequate risk mitigation.

How secure an OTP system is also depends on how it is implemented, server-wise. Let’s say a validation server doesn’t block several attempts using different OTPs’ in this case, it lacks security and can be subject to attacks.

How to use SMS OTP for business

Incorporating SMS OTP (One-Time Password) into your business operations can dramatically enhance security and build customer trust. Here are the most common use cases:

• Registering new accounts – When a user fills in a registration form, send them an OTP via text and ask for that OTP in order to complete the registration process.
• Activating user accounts – After registration, send another OTP to the user’s mobile phone to activate the account.
• Logging in without a password – Allow users to log in using their mobile number by sending an OTP to their phone, which they use instead of a password.
• Resetting passwords – When a password reset is requested, send an OTP to the user’s registered mobile number to authenticate before allowing the password modification.
• Transaction verification – For every transaction, send an OTP to the user’s phone to verify its validity before processing.
• Identity verification – Request the user’s mobile phone number before granting access to sensitive data or even when they first create their account.
To complete the verification process, send an OTP to that number and require them to fill it in.
• Multi-factor authentication (MFA) – After the user completes their initial login, add an extra layer of security by implementing OTP.
• Payment authorization – Verify the user’s identity in real-time by sending an OTP via text to their mobile phone.
• Change of account details – protect the user’s address, password, and phone number by requesting an OTP whenever they wish to make changes to their account.
• Secure file access – To make sure only authorized personnel can access sensitive documents and data, request authentication via SMS OTP.
• User consent verification – Ensure digital consent is genuine by sending an OTP via text whenever users agree to pre-determined terms and conditions.
• App registrations and third-party integrations – whenever a user registers for a new app or when they integrate third-party services, use OTP to confirm that the account is indeed theirs.
• Guest checkouts – Offer SMS OTP verification for guests making purchases, allowing for a quick authentication process that does not require account creation.
• Age verification – Restrict access to age-restricted products and services such as alcoholic beverages, tobacco products, gambling services, and adult content. During the signup process or before completing a purchase, prompt the user to enter their date of birth and mobile phone number.
• Event access – Control access to events securely by sending an OTP to ticket buyers’ mobile phones. Make this a requirement for entry at the event to ensure that only legitimate ticket holders gain access.

Advantages of SMS OTP

Before diving into the specifics, let’s explore some of the key benefits of using SMS-based OTPs for businesses:

• Secures data – SMS OTP helps maintain account integrity because it checks that the user is the owner of the account’s associated phone number, reducing the risk of identity spoofing.
• Hacking-resistant – OTPs are designed for single use and have a short lifespan. Their temporary nature means that even if an OTP is intercepted, it becomes useless almost immediately.
• Simple and convenient – Unlike token-based systems, SMS OTP doesn’t require users to possess any special hardware. Most users are familiar with texting and can receive SMS without needing new skills or technologies, which translates to high user adoption rates and minimal training or customer support.
• Widely compatible across devices and networks – SMS is supported universally by mobile network operators, making it functional on virtually any mobile device, regardless of the model or operating system. All users, regardless of their technology level, can receive an SMS OTP, making it an inclusive option for user verification.
• Instant delivery and activation – SMS messages are transmitted almost instantly, and mobile phones are constantly within reach of the user. This makes SMS OTP a quick, if not instant, delivery method and facilitates timely access to services. This unique feature is crucial for enhancing user satisfaction and operational efficiency, especially when dealing with time-sensitive situations.
• Increased security – Even if someone knows your password, they also need the OTP sent to your phone to access your account. This two-factor approach significantly enhances the security posture, reducing the likelihood of successful attacks and increasing trust in the service provider.

Challenges and considerations

While SMS OTPs offer many benefits for security and convenience, several challenges and considerations must be addressed to ensure their effectiveness and reliability.

Potential vulnerabilities

SIM swap attacks may pose a challenge, as these allow strangers to redirect sensitive user data by convincing their mobile provider to switch the victim’s number to a SIM the attacker can control.

Interception is also an issue, as texts can be intercepted due to malware installed on a user’s device. Spoofing or the use of Stingrays (IMSI catchers) are just two techniques the attackers use to intercept texts.

Reliability issues

SMS deliveries are not always fail-proof. Sometimes, networks get too congested, and texts simply don’t get through to the recipient, or they arrive with a delay. Failback options like email TOP or voice calls help provide a valid alternative.

Poor network reception is also an issue, as users are often in places with poor connectivity. Push notifications via authentication apps go beyond network dependency, and it also helps to keep users informed about expected wait times.

User experience concerns

SMS-based OTPs require a mobile network to deliver the password. If a user is in an area with poor reception, they may not receive the OTP in a timely manner or at all.

Solution: To overcome mobile network dependency, you can rely on email OTPs or simply use push notifications via authentication apps. It is also advised to keep users informed about wait times and offer the option to resend the OTP.

Another possible issue is that SMS OTP assumes that the user has continuous access to their mobile device and it is in working condition. Loss, theft, or damage to the mobile device can prevent access to SMS OTPs.

Solution: Implement various recovery options (email recovery, security questions) to make sure users can always get access to their accounts, even when they can’t access their texts.

How to implement SMS OTP

Implementing SMS-based OTPs can significantly enhance the security of user transactions and data access; but how exactly is it done? Next, we will guide you through the steps involved in effectively deploying SMS OTP in your business operations.

1. Ensure secure generation and transmission of OTPs

The best options for OTP generations include One-Time Passwords (TOTP) or HMAC-based One-Time Passwords (HOTP). Make sure to only use these strong cryptography algorithms that ensure passwords are unique and very hard, if not impossible, to predict.

SMS in itself is not equipped with message encryption. However, you can ensure the connection between servers and getaway providers is encrypted via protocols like TLS (Transport Layer Security).

2. Implement fail-safes and backup options for OTP delivery

As we mentioned before, it’s best to have fail-safe options like email OTP, voice calls, or push notifications. It is also recommended that systems cover the automatical resending of the OTP, in case the first one didn’t get through. You can back that all up with extra verification methods, like security questions or email verification, for added safety.

How can Textmagic help

Textmagic offers a robust platform for sending OTPs via SMS quickly and reliably, ensuring that messages reach their destination without unnecessary delays. Here’s why it works so well:

• International reach: With support for over 190 countries, Textmagic allows businesses to implement SMS OTP for users worldwide, seamlessly integrating with global user bases.
• Two-way SMS: You can use our two-way SMS feature to send OTPs and receive confirmation messages or alternative authentication requests from users, enhancing interactive security measures.
• API integration: We provide a powerful API that can be integrated with your systems to automate the process of sending OTPs. This can help streamline operations and maintain high security for user transactions and logins.

Alternatives to SMS OTP

App-based tokens are very similar to OTPs in that they generate time-based one-time passwords (TOTPs) on a user’s device. Such apps include Google Authenticator, Authy, and Microsoft Authenticator. A new code is generated every 30 seconds, which users must enter during the login process.

Similar to SMS OTP, email OTPs send a one-time password to the user’s registered email address, which they must enter to continue with the login or transaction.

Biometric verification uses unique physical characteristics such as fingerprints, facial recognition, or iris scans to authenticate users. This type of technology has become increasingly common in smartphones and high-security environments.

If we’re talking security, app-based tokens, and biometric verification offer higher security than SMS OTP by eliminating the risk of interception during transmission.

Email OTPs ensure broader access and lower costs but typically grant lower security due to the potential vulnerabilities in email systems.

Biometric verification registers the highest security and ease of use, but it comes with a hefty price and more significant privacy implications.

Conclusion

SMS OTP is effective in preventing fraud, verifying user identity, and enabling secure online transactions. It should be a part of every company’s security strategy, especially when backed up by alternative authentication methods.

This way, organizations not only protect their operations and their clients’ private info. They also ensure their users enjoy a flawless, safer digital experience.