What Is OTP, How It Differs from PIN, and Common Fraud Schemes

If you have a digital account for transactions, you must have come across OTP or One-Time Password. OTP, which is mostly received through SMS and WhatsApp, is a security code that ensures safe access and transactions for your account. OTP can only be used once and is valid for a very short period, making it different from a PIN or password.

Although OTP is commonly used, you may need to understand it better, including how it differs from a PIN and why it plays a crucial role in account security. This article will cover all these aspects.

What Is OTP and How Does It Work?

What exactly is an OTP code, and why should you keep it confidential? OTP is a unique code used to verify a user’s identity during an authentication process.

The full form of OTP is One-Time Password. It works through a system that generates random codes using encryption algorithms and is only valid for a limited time. The OTP process starts when a user initiates a transaction. Here’s how it works:

1. Requesting an OTP Code

   When you attempt to log into an account or perform a transaction, the system requests an additional verification step through an OTP code.

2. Sending the OTP Code

   The system sends the OTP code via SMS, WhatsApp, email, or an authentication app like Google Authenticator.

3. Verifying the OTP Code

   Users must enter the OTP code within a specified time frame to complete the authentication process. Typically, OTP codes expire within 30-60 seconds. If the code is not entered, it becomes invalid.

Differences Between OTP and PIN

Many people assume that OTP and PIN are the same, but they have fundamental differences. OTP is a dynamic code, whereas PIN is static. Here are the key differences:

1. Nature

   OTP is dynamic and changes every time it is generated. It cannot be reused for multiple transactions. A PIN, on the other hand, remains the same unless the user resets it.

2. Security

   OTP is more secure because it is a randomly generated code that is difficult to guess and can only be accessed for a limited period. PINs are less secure because they do not change, making them easier to guess.

3. Validity

   OTP is valid for a single access attempt or transaction, whereas a PIN remains valid as long as the user does not change it.

4. Usage

   OTP can only be used if it is sent to the user's device via SMS, WhatsApp, email, or other channels. A PIN can be used at any time and entered manually. OTP is commonly used for transactions requiring high security, such as online banking logins or purchases.

Common OTP Fraud Schemes

OTP fraud occurs when a user’s OTP is misused. Although OTP is designed as an additional security layer, it is often targeted by fraudsters who exploit system vulnerabilities or user ignorance. Below are some common OTP fraud schemes:

1. Phishing

   Scammers impersonate official entities, such as banks or e-commerce platforms, and contact victims via SMS or email. They ask for OTP codes under the pretense of account verification or security updates. Victims are often directed to fake websites resembling official platforms to enter their OTPs, allowing scammers to gain access to their accounts.

2. Phone or Video Call Scams

   Fraudsters pose as customer service representatives from a bank or company. During the call, they request OTP codes, claiming they need them for verification purposes or to resolve account issues. Since the scammers appear convincing, many victims fall for the scam and share their OTPs.

3. SIM Swapping Attack

   In this scheme, fraudsters trick mobile operators into transferring a victim’s phone number to a new SIM card under their control. Once they take over the victim’s phone number, they can receive all OTP messages sent to that number. This method is commonly used to hack into banking and online service accounts, as OTP codes serve as the primary authentication factor.

4. Malware Attacks on Devices

   Fraudsters embed malware into a victim’s device, usually through malicious apps downloaded from unverified sources. This malware is designed to steal OTP codes that are sent to or entered by the user when logging in or making transactions.

How to Avoid OTP Fraud

Digital fraud involving OTP codes is increasing, leading to cases of financial loss due to leaked OTPs. However, you can take precautions by following these tips:

1. Never Share OTP Codes with Anyone

   OTP codes are private and should only be known by you. Official entities will never ask for OTPs via phone, email, or SMS. If someone claiming to be from a bank or company asks for your OTP, do not trust them.

2. Avoid Clicking on Unknown Links

   Have you ever received a message containing a code and a link? Be careful, as scammers often use this tactic to steal personal data. These messages are usually accompanied by alarming statements, such as announcing that you have won a prize or that your account has been locked. Do not immediately believe them. Always verify the URL before entering sensitive information.

3. Use Multi-Factor Authentication (MFA)

   Multi-factor authentication combines OTP with other verification methods, such as biometrics and device-based authentication. In fact, a combination of biometric authentication and device authentication often eliminates the need for OTP altogether.

Use Authentication from VIDA

VIDA is one of Indonesia’s leading authentication solution providers, integrating device-based and biometric authentication to counter digital security threats. The solution includes two main authentication methods: PhoneToken and FaceToken.

1. VIDA PhoneToken

   VIDA PhoneToken uses device-based authentication technology supported by Public Key Infrastructure (PKI). By linking a user’s identity to their device, this solution eliminates the need for OTP as authentication occurs directly on the device.

2. VIDA FaceToken

   VIDA FaceToken utilizes biometric authentication with advanced technologies such as face liveness detection and face matching. This ensures that only the genuine user can access their account.

Although OTP is still considered a secure authentication method due to its dynamic nature and limited validity period, it also has weaknesses that can compromise transactions. It is crucial to remain vigilant against fraud schemes that exploit OTP.

Research shows that 84% of business fraud originates from OTP-related scams. The question remains, is OTP still safe?

Find out more in VIDA’s latest whitepaper: Where’s The Fraud: The State of Authentication and Account Takeovers in Indonesia.