What is a One-Time Password?

With digital banking and online transactions becoming everyday activities, security is essential. A One-Time Password (OTP) adds an extra layer of protection for activities like logging in or confirming financial transactions. OTPs help ensure that only the rightful user can access an account or complete a sensitive action.

Read on to know what it is, how it works and much more.

OTP Full Form and Meaning

OTP stands for One-Time Password. It is a temporary numeric or alphanumeric code sent to your registered mobile number or email to verify your identity. Unlike static passwords that remain the same until changed, OTPs are valid only once and for a limited period, making them highly secure.

Why are OTPs important?

OTPs act as digital keys that confirm your identity, providing an extra layer of protection through Two-Factor Authentication (2FA). Security is not only based on what you know (like a password), but also on what you have (like your phone). This reduces risks like phishing, fraud, and unauthorised access.

How Do One-Time Passwords Work?

A One-Time Password (OTP) is a temporary, system-generated code used to verify your identity during a digital transaction. Here’s how the OTP process typically works:

1. When you log in or perform a sensitive action, the system generates a unique OTP.
2. The OTP is sent instantly to your registered mobile number or email address.
3. You must enter it within a limited time.
4. Once used or expired, it becomes invalid.

Types of One-Time Passwords

OTPs are not all the same. Different systems use different methods to generate them.

• Time-Based OTP: These OTPs are valid only for a short time, usually 30 to 300 seconds. Once the time expires, the OTP becomes invalid automatically.
• Event-Based OTP: These are generated for a specific action, such as logging in or confirming a transaction. They remain valid until used or replaced.
• SMS-Based OTP: The most common type, sent directly to your mobile number.
• App-Based OTP: Generated within an authenticator app, offering higher security.

Benefits of OTPs Compared to Static Passwords

Some key benefits of OTPs are:

• Enhanced Security: OTPs are valid only for a short period and can be used once, significantly reducing the risk of unauthorised access even if the code is intercepted.
  
• Protection Against Data Breaches: Static passwords stored in databases are vulnerable to leaks. OTPs are generated in real time and are not reusable, limiting exposure during security breaches.
  
• Lower Risk of Phishing and Credential Theft: Since OTPs expire quickly, phishing attempts are less effective than stolen static passwords, which can be reused indefinitely.
  
• No Need to Remember Complex Passwords: Users don’t have to create or recall long, complicated passwords, reducing friction during login or verification.
  
• Faster, Smoother Verification: OTP-based authentication enables quick identity verification, helping lenders complete verification steps more quickly in digital loan journeys.

Common OTP Issues

While OTPs are designed to make digital transactions more secure, users often face issues during verification, especially when applying for personal loans online. Some of the most common OTP-related problems include:

• OTP Not Received: Network issues, DND settings, or temporary service outages can delay or block OTP delivery on your registered mobile number.
  
• Delayed OTP Arrival: OTPs sometimes arrive after their validity window has expired, forcing users to request a new one and repeat the process.
  
• Incorrect Mobile Number: If your bank or lender has an outdated or incorrect phone number on record, OTPs will not reach you.
  
• OTP Expired: OTPs are time-sensitive for security reasons. Entering them after expiry results in verification failure.
  
• Multiple Failed Attempts: Repeated incorrect OTP entries can temporarily lock verification or slow down the loan application process.
  
• SIM or Network Changes: Recently changing SIM cards, phones, or network providers can interfere with OTP delivery due to security checks.

Conclusion

One-Time Passwords (OTPs) authenticate user identity, protect personal data, and help prevent fraud during online lending processes. If you do want a fast, digitally driven personal loan experience with simplified documentation and quick fund disbursal, platforms like Fibe’s Personal Loan offer a compelling option.

With instant online approval, loan amounts ranging up to ₹10 lakhs, flexible repayment tenures, and competitive interest rates, Fibe streamlines the borrowing journey while still complying with RBI-mandated KYC safeguards. Apply now!

FAQs on OTPs or One-Time Passwords

How do I find my OTP code?

Your OTP is sent to your registered mobile number or email when you attempt to log in or complete a transaction.

Do one-time passwords expire?

Yes, OTPs expire quickly, typically within 30 seconds to 10 minutes, depending on the platform. This ensures that even if someone gets access to your OTP, it cannot be misused after the expiry period.

Why do I sometimes not receive OTP messages?

Network issues, incorrect contact details or temporary service delays can prevent OTP delivery.

Is SMS-based OTP safe for online transactions?

Yes, when used correctly and not shared with others, SMS-based OTPs provide a strong layer of security.