OTP Security: Risks, Best Practices, and Alternatives

One-Time Password (OTP) is a common authentication mechanism, especially for financial transactions. Unlike static passwords, which remain fixed until the user changes them and can be reused by attackers, OTPs are unique and generated for one-time use. There’s a short window in which they can be used before they expire and must be requested again.

OTPs are frequently used as part of multi-factor authentication (MFA) across many services, but the question of OTP security remains relevant in mobile security. While they are generally considered a stronger layer of protection than conventional passwords, factors such as the channel through which the passcode is delivered raise reliability and security risks.

What You Will Learn

• OTP definition and mechanism of use
• Delivery pathway security of OTPs
• Best practices for maximum digital safety

What Is OTP, and How Does It Work?

An OTP is a unique code generated for each login attempt or transaction, consisting of a randomly selected sequence of characters and never repeated.

In addition to unique code generation for each request, an OTP usually remains active for a short period, typically ranging from 30 seconds to a few minutes, after which it expires and cannot be reused. Once the user inputs an OTP, it becomes useless to attackers, unlike fixed passwords, which remain a universal key to certain accounts and services.

The two main types of OTPs are:

1. TOTP (Time-Based One-Time Password), valid for a limited amount of time
2. HOTP (HMAC-Based One-Time Password), valid until used

OTPs also play a key role in many multi-factor authentication (MFA) systems, serving as a link between lower-security factors, such as passwords, and more robust protection methods, like biometric authentication. However, if a passcode is intercepted or mistakenly entered on a malicious website, it can become the point of liability in the MFA chain.

Enabling OTP is a more secure approach than relying on passwords alone. If attackers obtain your login credentials through fraudulent actions such as SIM swapping or a data breach, as long as you have an OTP in place, they shouldn’t be able to gain full access to your accounts.

However, this premise largely depends on the delivery pathways used to obtain the unique code, as some are more easily penetrated than others.

Is OTP Safe? The Role of Delivery Methods

OTP security is largely dependent on the infrastructure used to generate and deliver the code. While some delivery channels may be sufficiently secure for low-risk scenarios, they may not be suitable for sensitive accounts, such as financial services.

The core OTP delivery channels include:

• SMS OTP: Because SMS is tied to your phone number, which is susceptible to network attacks and interception, it is considered one of the least secure authentication methods. Despite SMS OTP security risks, it remains widely used by many services, but it should ideally be reserved for low-risk actions only.
• Messaging apps: Services such as WhatsApp can be used to receive codes, often as an encrypted alternative to SMS, but they are still not completely immune to network threats.
• Voice OTP: The code can be obtained through an automated phone call, which is another method prone to network-related vulnerabilities and not favorable in high-risk scenarios.
• Email OTP: Since email is often targeted by attackers as a source of verification codes, recovery links, and other sensitive information, receiving an OTP there can also be compromising.
• Hardware tokens: Hardware-based OTPs are completely independent of the internet since they’re generated on dedicated physical devices. Because the code isn’t entered manually or displayed on the screen, they are less exposed to software-level threats such as malware and remote attacks.
• Authenticator apps: Apps such as Google Authenticator and 2FAS generate codes locally on the device and do not depend on internet connectivity or cellular networks, reducing exposure to network-based attacks. They typically use short validity windows and can be combined with additional protection layers, such as biometric authentication.

Common Risks Affecting OTP Security

While attack vectors can differ across channels, understanding how these security threats operate is essential to fully understand OTP security mechanisms.

SIM swapping, as one of the most damaging threats to mobile security, occurs when attackers convince or manipulate mobile carriers into transferring a user’s number to a new SIM card. Port-out fraud, on the other hand, focuses on transferring the number to a different carrier. Both forms of fraud could have far-reaching repercussions, including the takeover of services such as banking and social media platforms.

SMS OTPs represent a key vulnerability in these scenarios as codes are sent directly to bad actors and used to access sensitive accounts, potentially bypassing additional security mechanisms such as two-factor authentication (2FA). SMS and email communication can also be subject to numerous flaws of outdated network protocols, which may allow for interception and redirection of messages without physical tampering.

In real-time phishing attacks, attackers use convincing tactics to manipulate users into revealing their OTPs without compromising their SIM cards or devices. This often involves fake, realistically designed login pages to trick users into entering their OTPs. Similarly, in social engineering attacks, scammers may pose as representatives of legitimate organizations, such as banks, and use urgency tactics to persuade users to reveal the code.

Still, OTP can be a valuable security element against these threats when core best practices are followed.

OTP Best Practices for Increased Security

In addition to favoring more secure OTP methods and avoiding SMS as the weakest link, the OTP system can be strengthened with appropriate safeguards. While OTP isn’t a bulletproof authentication method, certain practices can make it significantly more reliable and harder to exploit, including:

1. Prioritize time-based OTP (TOTP)
2. Never share OTPs
3. Verify domain or app authenticity
4. Employ stronger security mechanisms

1. Prioritize Time-Based OTP (TOTP)

TOTP relies on short code validity intervals, which significantly reduce the attack window and prompt quick action. Unlike HOTP, these codes expire as soon as the assigned time is up, leaving little room for interception.

In addition to prioritizing short expiry windows, it is recommended to use OTP systems that limit the number of attempts. Rate limiting helps prevent brute-force attacks by preventing the attacker from guessing or deciphering the code.

2. Never Share OTPs

Scammers often use manipulative tactics, typically posing as bank employees or government officials, and urge you to share your OTP so they can stop a fraudulent action, such as an unauthorized transaction.

Since the person in possession of your OTP can authenticate as you and access sensitive accounts, potentially leading to impersonation or financial loss, it is essential not to share your codes with anyone, especially if their identity isn’t verified.

3. Verify Domain or App Authenticity

Always verify a web page's or app's authenticity before entering a code because fraudulent websites and malicious apps are among the most common account takeover strategies used by attackers.

Forged login pages can appear identical to the official website, but the web address often reveals the difference. Examine the URL letter by letter, ensuring that there are no omitted or extra characters, which are usually overlooked.

When verifying app authenticity, ensure you download apps from official, trusted sources and avoid sharing sensitive data with unverified platforms.

4. Employ Stronger Security Mechanisms

Relying on cryptographic keys instead of codes can substantially reduce the attack surface and harden account authentication against phishing and interception attacks. FIDO2/WebAuthn, for example, offers passwordless authentication, ensuring that even in the event of a breach, the information the attackers access is of little value as there are no shared secrets to exploit. Since the credentials are bound to specific domains, phishing attempts are largely ineffective, closing yet another major gap in account security.

Some users gravitate toward hardware security keys such as YubiKey or Google Titan Keys, which require a physical authentication device and significantly reduce the risk of remote, software-based attacks. These devices are fully portable, connect via USB or NFC, operate completely offline, and require no manual code entry.

Final Verdict: Is OTP Enough?

Essentially, OTP only fulfills the possession requirement, meaning that whoever has it can leverage it. However, it is not only physical theft that poses a risk, but also network-related shortcomings and user-focused attacks, such as phishing and social engineering.

The following table provides a comparison of different authentication methods, highlighting their advantages and weaknesses:

Some privacy-focused mobile carriers, such as Cape, are moving away from OTP entirely, replacing it with advanced cryptography. In place of traditional passwords, Cape uses digital signatures for account authentication, where only the user holds the key and can initiate account changes, such as port-out requests.

The carrier doesn’t know or store this information, relying on the powerful principle that data that isn’t collected can’t be compromised.

Cape Makes Security the Standard: Here’s How

Cape is America’s privacy-first mobile carrier, providing premium, unlimited, and nationwide call, text, and data. Unlike other providers, our service is built from the ground up with privacy and security at its core.

Mainstream carriers track you and store your data, often without your consent. Cape takes a different path—we collect the absolute minimum amount of information to provide you with service.

Any information we do collect is retained for the minimum amount of time possible. Most carriers store call data records (CDRs) for years, sometimes indefinitely. Cape stores yours for just 24 hours, and we have a commitment to never sell your data.

Cape service includes security features that no other carrier offers:

• Minimal Data Collection: During onboarding, we don’t ask for your name, Social Security number, or address. We only collect what’s necessary to provide you with service, and we retain it for the minimum amount of time possible.
• Identifier Rotation: Every SIM card has an International Mobile Subscriber ID (IMSI), a unique identifier which your device uses to register with cellular networks. Most carriers assign a fixed IMSI that stays the same for the life of your account, making it easy for your carrier, advertisers, and bad actors to identify and track your device over time. Cape breaks that pattern by allowing subscribers to automatically rotate their IMSI every 24 hours, so you appear as a different subscriber every day, making it much more difficult for anyone to follow or track your movements.
• Secondary Numbers: Your phone number is a target for data brokers and scammers. Retailers, websites, apps—everyone is routinely asking you to share your number with them, which exposes you to a variety of risks. Many turn to VoIP numbers to use as secondary lines, which can be helpful, but cost extra, don’t work with 2FA, and aren’t encrypted. Cape provides subscribers with two free additional SMS/MMS lines that are middle-to-end encrypted. With secondary numbers, you can reserve your primary number for communicating with your close friends and family, and use the other for anything from shopping and signing up for discounts, to receiving secure OTPs.
• Disappearing Call Logs: Call and text records reveal a lot about you, from who your closest relationships are to when and where communication took place. With traditional carriers, your call and text metadata doesn’t just disappear; it’s retained, analyzed, and folded into a lasting customer profile. At Cape, we’re built to forget and delete these records after just one day.
• SIM Swap Protection: A SIM swap happens when an attacker convinces your carrier to transfer your number to their device, allowing them to receive your calls and texts, trigger password resets, and gain access to your accounts. Cape protects against SIM swaps by removing humans entirely from the loop. During sign-up, you receive a 24-word phrase that generates a private key tied to your number. This phrase is the only way to move your number to a new device or carrier. No one, not even Cape, can transfer your number without your phrase, giving you full control over your number.
• Network Lock: Traditional cellular networks were designed for interoperability, not security. Outdated and legacy network protocols like SS7 have vulnerabilities that allow attackers to hack in and track your location, intercept your calls and texts, and steal sensitive information. Cape’s Network Lock uses a proprietary signaling proxy to verify that your device’s physical location matches the network it’s trying to attach to. If anything looks suspicious, like a mismatched location, we block the connection.
• Encrypted Voicemail: Voicemails can reveal more than you think, from personal messages to authentication codes, yet most voicemail systems are outdated and unencrypted. Cape encrypts your voicemails so that only you can access them.
• Secure Global Roaming: While you’re traveling abroad, your phone connects to local telecom providers to provide you with connectivity. But not all networks are secure, and not all governments treat privacy the same. Cape routes your traffic through our U.S.-based mobile core. Our Secure Global Roaming gives you the convenience of international data roaming without exposing your identity or communications. You get up to 15GB per month of international roaming included in your plan.

These features are made possible because we’re a “Heavy” Mobile Virtual Network Operator (MVNO).

Other MVNOs (such as Mint Mobile, Cricket, etc.) simply ride on top of the mobile core, SIMs, and physical infrastructure of their underlying MNO partner. At Cape, we actually own our own mobile core and provision our own SIMs.

This gives us control over how accounts are authenticated, what data we do and don’t collect, how long we retain it for, as well as the ability to build proprietary features like Identifier Rotation. No other carrier on the market has this capability.

Reclaim Your Privacy: Switch to Cape Today

Ready to ditch traditional telcos and switch to a privacy-first mobile carrier? Visit cape.co/get-cape to sign up.

Thanks to our partnership with Proton, you can also take your privacy a step further and get Proton Unlimited or Proton VPN Plus for only $1 for the first six months.